less risky strategies are exactly the way to do it. Traders with bad money management will blow up no matter what instruments they trade
I just wanted to add something very briefly, but worth stating, there is an OPTION for just about every strategy out there. The real question is, do you have an underlying strategy? Options are the most effective if you first build a skeleton of a strategy then look for particular options with which to flesh it out. OTM calls/puts have their place as well as writing calls and puts. Options expiring worthless is a GREAT thing depending upon your strategy. The question is, do you REALLY HAVE a basic strategy to employ? Are you just trying to collect premiums, or is your use of option to hedge current positions? Buying and writing calls/puts have their places, just have to know what you are after.
Forgot to mention. When volatility is high and options become expensive is better to be a seller. When volatility is low and and options become cheap is better to be a buyer.
Great guys, Thanks for all of the advice. I've been trading futures for a couple years and have a good solid strategy of trading. I'm just thinking about selling the option out of the money. Are there ways to cover yourself in case the market goes against you
Selling out of the money calls is a bearish bias on the underlying (or at least you think it won't go much further). To complete the bias you could hedge even more by buying the mirroring put. What goes up must come down (at least some, usually). This is a good strategy to lock in some profits. When you think the underlying has peaked you "collar" it. You hope you've forecasted the top (or close to it) write the call, collect the premium. With the premium buy the put or just pocket it. If the market starts to move against you, you can reverse to bullish by writing an OTM put and purchasing a corresponding long call. Just some thoughts and strategies.
Long or short options the key is to trade to a plan and proper money managment and risk control-have your rules and stick to them. Yes when short options you have theoretical unlimited risk and limited reward - however the risk can and should be managed (though even then the market might bite you in the arse). When long you have limited risk and unlimited reward, but what no one says is that the limited risks can add up over time to a big loss anyway.
emjroll, I'm sure you meant to say Selling uncovered calls = UNLIMITED downside Right? If he sticks to selling puts, then his risk is only as great as if he were to buy the stock outright. Even less, because he can roll out/roll down/buy back the contracts. And that's why selling puts is safer than buying stock. Covered call losses are also limited to the value of the stock (minus the options premium). But as I explained earlier, covered calls involve a larger cash position. lasner, go with selling naked puts.
Ok, Yes Uncovered Calls = Unlimited Downside Uncovered Puts = Total Value of the Stock * 100 * # of contracts, which tends to = ass rape