Options vs Stops

[Mervin Yeung <tinyeung@xxxxxxxx>]

Hi RTs,  

I rarely trade options or use options as a risk-control tool.  So, I am
going to ask a few naive questions about using options instead of
stops.  

I trade currency futures contracts but I find stops are almost
completely useless because of over-night moves.  Also, in some futures,
such as T-Bond, I had a first-hand experience of my stops being filled
30 ticks away from the intended price.  

Say, if I am bearish on D.Mark and I want some protection, I can:  

(1).  Short D.Mark futures and then place a stop loss order (buy stop);  

(2).  Short D.Mark futures and then buy D.Mark call options;  

(3).  Buy D.Mark put options.  

Which is the best way to do it?  I think (2) and (3) are the better way
to go because (1) cannot protect you from over-night moves.  However, I
was told (by a friend) that by buying options, I paid more than the
"fair" (relatively speaking) price.  Options writers are not dummies who
allow you to transfer all the risk to them without asking "high"
(relatively speaking) premium.  Is that true?  

Also, I am concerned that the liquidity in options market is not as good
as in futures market.  Correct me if I am wrong.  

I am so inexperienced in options that I worry I may have a bad trip if I
try to explore the unfamiliar.  

Thanks in advance for any comments.  

Mervin