Some of the more experienced traders may correct me and if I am wrong I will carefully consider what they say, because I respect their opinion. But, I would think applying a strategy used for underlying stocks to apply to options would be a loser's game. You could be paying too much for the options or in the case of credit spreads maybe you sold them cheap. You have got to first understand the principles of implied volatitlity. I understand the basics. But, before I am through I will understand it inside and out.
Perhaps I have more capital than you think. I am just allocating a limited amount to it while I learn.
Read that sentence a couple times and you should be able to clearly see why it is self-contradictory. Options are a derivative of the underlying security. What happens to the underlying....WHEN it happens....WHY it happens...HOW MUCH it happens...HOW OFTEN it happens...all impact options pricing, and consequently profitability. You can memorize every page of McMillan and make Black-Scholes your daily mantra, and understand all there is to know about how options are priced in time and space, but when the underlying moves in a direction you have not anticipated (and gosh, they sometimes do that) it is all for naught, my friend. Those who have traded options for some time will understand. Those who don't...well, they will learn in time
lindq, maybe you should reread it closer. Just because the underlying move will affect the options doesnt mean you must be good with directions to succeed in options. Surely, it helps but it isnt necessary. Skipped the logic class in college, didnt you? As far as trades moving against you, well i am sorry, apparently that never happens in equities. Carry on.
I am going to trade options. It is that simple. You think I am making the wrong decision. Think what you want. Post again as you please. If you can provide some useful guidance that I can use regarding options, I would be very appreciative and will respond. But, if all you you can give me reasons why I shouldn't do them, then well your posts are not of much help, because you have already made this point.
JSHINV, i wouldnt worry about things like paying too much or selling too cheap as that is all relative. Too cheap compared to what? Paying too much vs what? In the case of vols, just because an option has alot of juice doesnt mean you should sell it or vice versa. Those things are juiced up or flat for a reason. With options you gotta make a prediction on 1. direction which includes standstill and a few other variances, 2. volatility or 3. some combination of both or lack thereof. When you understand how options are priced and what discrepancies can occur you will be in a place where you can make an informed decision on how to maximize your return on risk or limit risk for a comparable return. One of the nice things about learning options is that you start thinking in alternatives which broadens your view by a large margin. A simple opinion about the direction or volatility could be played in many different ways. A common theme you will come accross is that probabilities are inversely related to risk/reward. Those trades that have high probabilities of success are often the ones who carry the biggest risks and vice versa. It is simply a tradeoff. Risk is the options trader achiles heel. Only those who learn how to guard it may find success over the long haul. So always think defense and build on that. Read momoneythansens posts closer. He has a tendency to go into details more than anyone else on this board and his posts will prove very informative to you. Just make sure you dont send him money for his premium selling system as that hasnt been proven just yet.
I ccouldnt help but notice this so i will give you some nice weekend reading. Nothing wrong in leaning towards selling vs buying options just make sure its for the right reasons. http://www.elitetrader.com/vb/showthread.php?s=&threadid=53037&highlight=living