HandsOn, options is very much like gambling, you can get obsessed and go overboard, with portfolio fluctuations by factors of 2-4 within months. There are safer and conservative options plays for which you need a highly qualified account. Generally trading is rather illiquid and commissions are pretty high - so when you want to back out of a losing or ill-advised position, commissions and spread can hit for about an extra $200. It is also rather time-consuming to execute - look up quotes, follow quotes, etc. It also seems rather tempting during times like these when people can cash in big on bets made months earlier - however the market doesn't always go up nor does it go the way you'd like it, when you'd like it. To win at options, you
have to be right:
1. On the market direction and timing
2 On the sector direction and timing
3 On the stock direction, timing, and magnitude.
OR just lucky in these ways.
So its basically a lottery game. maybe its easier just to buy internet IPOs! But one strategy is to segment your money, 90% in absolutely safe 6% treasuries, 10% for highly improbable/highly possible profitable option bets. Most lose, but a few big ones hit.
This (and other strategies) is described in Macmillan's option book.
Greg |
