I know, without a doubt, a few years ago I could NOT have traded options as a retail client with much success. The fee's and lack of tools are the reasons. Today with high end platforms (I use thinkorswim) and low fee's it has become reasonable to trade in options because you HAVE to know and deal with the probability of success to evaluate a risk/reward you can live with. With those tools and proper risk management you can succeed over time. If you have had success in the stock market over a period of time there is no reason that you can not have success in the option market with actually LESS total monies at risk. JMO Given your background and interest you certainly have as much or more chance of success than the average option trader.
It's not just option traders that blow out, all traders do, be it stock traders, futures traders or whatever. It's just the nature of the business - in order for the select few to succeed the majority must blow out. The problem is that trading has very little barriers to entry (i.e. low start up costs) so most people approach trading with the idea that making money in trading is as simple as reading a book or two. Well, guess what, it's not. If you were to tell someone to read a book about building a house and then set up a building business and earn money from it they would tell you that you are crazy. But when it comes to trading people approach it just like that. Trading is no different to any other business venture and in some ways it is even harder to succeed in trading. That's why most people blow out.
Greed, overexposure, and failure to use protective positions taking the other side, "Just In Case"...
Well, everything said by the posters in relation to your post here is true and correct. 75%+ of traders in generall blow out - from bonds to options. But in my experience, Option traders - the ones who buy outright, tend to blow out faster than any other type of trader. The reason IMO is because they either rely too heavily on the mathematics involved or rely too heavily on the technical/fundamental analysis involved in predicting direction. In both cases, they fail to balance that against anticipated volatility. With option buying, timing and prediciting magnitude is everything. I learned that early on which allowed me to move from options to futures. Does it take a different kind of person to survive over the long term in options? Sure, if that different type of person is one who employs proper money management skills, proper analytical skills, and discipline. Each is equally important with options as there is less margin of error. This person has to be supremely dedicated to trading options. Given the high level of risk with option trading, it can't be a hobby. Any one trade going to "zero" in a very short period of time is a very real possibility. For example. I recall an OEX trade I did about 13 years ago. I was long an ITM (in the money) OEX call. I think it was about $4 or $5 a piece. At the time the options market opened at 9:15 EST. But some news came out @ 8:30EST and the S&P futures went lock limit down. My options opened @ 1/8. Which is essentially worthless. (There haven't been many lock limits recently. I suppose since the trading bands have widened and since S&P went electronic.) Now, I could have had a straddle on which would have been profitable. But by day's end, the S&P-OEX bounced back to unchanged. But my position only returned to approx $2. Because after a big move like that, volatility was expected to shrink near term as prices consolidated and that was reflected in the price. Now, had I been able to trade the futures, a number of things could have happened. I could have had a stop which would have triggered overnight for a small loss. I could have had a margin call which would either end in a forced liquidation or myself having to wire more funds to cover, or I could have stayed put with enough funds in my account. Given my strategy and analysis, I would have been flat to slightly profitable by the day's end because I knew that it was a panic bottom and would not have been shaken out of my position. Just like I wasn't shaken out of my position with the option trade. Even though I was right on direction, unanticipated volatility spike ate up my Greeks. I think it was two weeks or less before expiration. But the next day, I ended up closing the position for $1 or so. It was a ~75% loss. (~40% loss on account equity.) I think that was my turning point. And that was just one case in point. Futures wise, I never sustained a loss remotely close to that. I think my largest single loss in futures was 10% of the amount put up. Not my entire account. Which translates into ~1% of total account equity. You could have the same money managenment profile with options, but not with the same accuracy. Let me say this in closing, I'm not anti-options as options can be a very lucrative part of any investment strategy. But one's investment strategy should not be overweight in options. The perfect balance between risk/reward/leverage/liquidity are certain futures such as E-mini S&P 500 futures, E-mini Nasdaq, and E-mini Russel 2k. And if you're interested in currencies, Euro FX (6E) futures which is the Eur/USD equivalent. All of them trade round the clock giving you plenty of opportunity to fine tune your position or for entry and exit. Not sure you can do that with options. Since last I traded them, there was no overnight trading. Might have changed since then.
Thanks everyone for the comments. I am pulling way back in options. I lost $6000 in about a month's time. I am not blown out, but it is going to be a small part of my investment strategy from this point forward. I realize some of you guys (this is not gender specific) are wealthy professional investors that do this full time and are very sophisticated. I appreciate your comments. I am going to take it slow from this point forward.
That's just silly. I am sorry but i am going to take the other side of this arguement. Your example is barely any support to the statement you are making. It shows nothing but the mentality to hold onto a loser until it snaps back. Synthetics ARE equivalent pre, at or post expiration. Hence the term synthetic. Here is a more accurate example of what you are trying to describe. I am not forced to close anything or take a loss with my short put which is now $5 ITM. I can just roll it out which is going to be identical to you holding onto your long stock and selling another call against it. Oh wait, maybe you wont sell another call and just wait for the loser to come back to life, well no arguement there. Let me know how that style works out for you
Would you like to share what you did to lose that money, maybe then we can give a more structured suggestion. It appears you are quite interested in options, options trading might be a tough world to live in but it can be very lucrative for the prepared mind.
Thank you for the offer. Yes I would. I don't have time now, being Friday night and all, but over the weekend I will document some of my thought process and actions. I am asking myself, did I choose the wrong strategy? Did I bail too soon? Was I psychologically unprepared? Those kind of things. You are right, I am very interested. Thanks, again. I will be post a more detailed response in a day or so.
I respectably suggest that with a $6000 loss you may be paying too high of a tuition cost here. The great thing about options is they allow you to limit your risks to almost exactly any level you want. You could be learning just as fast trading 1-contract sized vertical spreads, calander spreads, and butterflies on equities while only risking less than 100 dollars on most trades easily. You could even be making trades that while not necessarily having a long-term expectation of making a profit, during the short time that you spend learning will more than likely make you some small profits.