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>Hi Rtrs,
I was going to ask the question which is better options or securities
depending on market conditions. Because there are hardly any posts on option
trading, It seems most traders stay away from it probably for few reasons:
1} Traders have been brainwashed that since 90% of options expire worthless
so 90% of option buyers lose money. Nobody talks about size of
winners/losers or the fact that 95% of futures traders lose money anyway.
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2) So to make any money in option , you have to write options which requires
more deligence, and has unlimited risk. This again scares away traders.
3) For options, you will have to spend extra money for software, data and
extra time for analysis. Also there are very few success stories available
in option trading.
4) Lot of inexperienced traders have got burned buying overpriced options
at inflated commissions touted by shady companies.
5) For Options, you have to be right about market direction, volatility and
worry about delta and time decay most traders have more than enough problem
worrying about market direction.
What is the answer?
It is a tool, difficult because you can structure your risk using
spreads/underlying security. It is a simpler tool when buying straight
puts/calls.
Does anybody uses it to trade market tops and bottoms or to built large
positions in a trending market using option pyramids or for trend-following,
channel breakout, 1-2-3 bottoms, time and price turning points, fibonacci
resistance/support, triangles.wedges, head and shoulder patterns.etc
Does anybody use it to position themselves or to protect their position
before a major report/event?
Does option prices have any predictive power?
Does anybody use it for say stock split/ earnings report?
Does anybody use cheap out of money option to position themselves for a
major move? Now who would want to do that? There is a very nice article in
Applied Derivatives magazine about it - so many uses for options, so few
option traders/posts I am sure there are quite a few option
traders on RT who have their own opinion about the market conditions
(trend-following, market turns, major move etc) which favors option trading
v\s the underlying security. Perhaps their opinion would help.
Sorry for the long post. But I have seen a few traders use option to give
them an extra edge, reduce drawdown, and wanted to see some more post on
option trading.
Happy Trading,
Asif
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