I'm new to this game, and have been studying quite a bit. I started trading options for the first time several months ago. Had a bad experience overleveraging myself buying too much of the wrong direction at the wrong time. (isn't that classic !!!) Well, thankfully I didn't gamble the whole portfolio. I lost about 4% of my total portfolio in addition to what I lost in my normal other investments (mutual funds, some international funds, and a basket of stocks that is generally pretty conservative [low beta]). The interesting thing is - instead of me deciding to quit options and go back to my old ways, I had an epiphany with the realization that the amount of risk my normal portfolio is in. [i am about 70% invested in conventional stock equity instruments] I think I've lucked out on my stock picking in the last few years, so I've gotten complacent as to the possible downsides (that is, until the internationals popped recently). Because of all of this, I've geared down, studied strategies, studied -proper- money management (ie trading option qty's in a way that doesn't cause much drawdown when you do poorly), etc. --- and I've come to a realization: In this higher interest rate period we're entering, I want to get out of equities almost entirely, go to cash/bonds/higher-yield items, and get my excess returns from the options side of my portfolio. This way I can use interest production from the bulk of my portfolio to hopefully offset most option buying costs. Now the point of the message - there seems to be quite a few options games out there - but I've conceptually reduced them to two classes (1: sell, 2: buy): 1) making money off volatility changes and theta decay (usually involves selling options at high IV, and rebuying at low). Also - speculating on market direction (or lack of) and hoping for little standard deviation of general market prices - ie selling far otm credit bull put spreads & far otm credit bear call spreads. LARGE risk in those infrequent months of wildness. Most strategies, like butterflies, condors, etc. are really adaptations and altered manifestations of this simple concept. 2) simplest, but lowest risk: buying puts, calls, debit bullish call spreads (to reduce call purchase prices), and debit bearish put spreads. Simple speculation on market movement -- most money made on swing trading or longer periods. This technique could also serve as a substitute for scalping with underlying, as there is much less principal risk (downside exposure is larger on underlying scalps). on the other hand, unless options are far enough in money, small movements sometimes don't translate into price differences (because theta and market maker bid/ask spreads and nickel/dime quantization). I know McMillan isn't a fan of this, but I'm not convinced YET. Straddle buying resolves directional issue, but theta and IV exposure is doubly magnified as a downside. While #1 sounds tempting, one drawdown can easily wipe out 10 or more profitable transactions. I'm not even considering doing #1 unhedged (ie naked call or put selling). So I'm thinking about #2 until I'm otherwise convinced of some excellent risk management strategies to #1. The fundamental question: how many of you guys actively manage your entire portfolio like this? Any seasoned professionals think this is a bad idea? Any faults in my thinking? Is it naive to expect I'll do moderately well (better than interest income alone, or better than old fashion unhedged straightforward stock + mutual fund ownership) on #2 strategy alone? I'm also considering a hybrid with a small part of the portfolio - instead of all cash in portfolio, perhaps 10 or 15% in high yield quality stocks I can write covered calls against to get my yearly yields up from 5% -> 10%. I like the reduced risk - being able to sleep at night when indexes are tumbling a few percent a day - like they did in May/June, and might continue to.