Hi I'm a newbie at trading options. I've been trading futures for a bit and started trading options for a while. I've been losing my ass in options. I had a friend that told me I shouldn't be buying but selling as in writing the option. Could anyone give me some advice on this. I was just looking for some more info.
Until and unless you're consistently profitable trading the underlying stock, you shouldn't be doing anything with options. It will only accelerate your losses. Selling naked is doubly difficult if you are new to the business. Just don't do it. The few dollars you may collect in premiums won't help you when your stock or the market craters and you're holding losses.
Do a search. There are several dozen threads over the last couple of years that will save you a lot of time.
I should correct myself I not a newbie at options I've been doing it for a while, but I've been trading outside of the money trying to make a nice. In futures I'm doing well. When you buy options outside of the money it just impossible to pull off any profit. I've been trying for a couple of years. I was thinking about just writing options that are outside of the money. In the last three years of trying to make a hit outside of the money. I've never come up with a profit in fact I've lost everytime. I figure why not be on the other side and take the profit. My question is this if the trade goes against say I write a call option hoping the market will sell off and the market skyrockets through the strike price I have to pay the option price. Is this correct.
Lasner, Please forigive the self-promotion, but I think I can address your question. I'm a particular fan of covered calls. I'm averaging a nice return and have taught the method to my 17 year old who is also doing well. I've written some articles about it and featured some books that might interest you on my web site. Let me know if you have any questions. Steve Rosenbaum http://www.options-trading-resources.com/EliteTrSig Option Trading tools the pros wish they had! A former Chicago Mercantile Exchange employee reviews stock option trading software, books, and web sites and online income opportunity.
Use your underlying directional analysis to identify market peaks and troughs. Sell out of the money calls at peaks and sell out of the money puts at the troughs. Option premiums are at their high just before a reversal and you will have a lot more room for error if you try to sell at these time.
Writing means you can collect a lot of small premiums over a long time, but suddenly rare events occur in the market, and in seconds all your profit made over months, years can be wiped out. It WILL work until it does not work anymore. Then its to late for you unless you are managing money extremely conservative. If you think or someone give you the impression that this is an easy game, you and/or they should call Victor Niederhoffer. If you are going to trade options you should at least just start with buying plain calls and puts.
Knowing that, why would you ever buy OTM options? They are an uphill battle. Stay with ATMs, & 2-3 months for expiry so that time decay won't eat you alive.
Be the guy on the otherside of your losing trades. Sell out of the money options. They expire worthless most of the time. Hedge though.
Exactly! The key is to patient and don't overextend--Then the rare events will not and cannot wipe you out