Richard has made a very good point, we have explained this many times with examples however someone new can jump in with all his capital in options and be wiped clean if the markets drop from here. What we do is to keep with level of experience as we progress 5% to 25% of our account in trading. I have nearly 30% that is extremely high, but my hedge strategies are equally complex. I strictly recommend 5% -10% only on day trading or position trading activity. Like if you have 100,000$ net account use max of 10,000$ on trading strategies.
When markets go through those steep corrections (like from 9th to 19th Aug, I am the most critical of those big disasters posts within those moves, when it most prone to death the marekt represents best values), I try to establish new positions (long ones only for new accounts and new traders, never ever sell a call or a put if you are new), say AMZN had hit 88$'s we will establish 95$ call for Oct instead of buying 1000 shares, now the reason is that this market has no bottom and no top, it can crazily go and test 1000 on NDX in 1998 Oct and now is upwards of 2450 with in less than a year, if you enter 1000 shares of AMZN at DOT 450 and we break through 450 we can hit 350 may be lower so stock can be halved, on option we try to think that this is the bottom and with some of our capital ( rest of it is safely invested since last few years in CSCO NOK TXNM INTC MSFT, to protect this core I will go and buy some SPU puts on peroidic basis, I some time in a bull market will let these puts expire because premium spnet is considered as insurance)BUY THESE 95$ calls say at 6$, I shell out 6000$'s.. now until Oct if market stays depressed I will loose 6000$'s but the way this marekt has behaved it can pretty nicely turn around at major supports, as such 6000$ can be worth 32000$,based on last night closing prices of AMZN. The fact remains unlike stocks, options are very difficult and one needs to be very careful, you can loose most of your premium and as such only a small portion of capital needs to be employed. I have higher portion because I make my money from these options. I use more exotic kind of schemes, like selling covered puts with percentage spread or stradles and strngles, if one use combination of all these strategies I would think that one can trade these markets on both side.
If you are kind of trader who is psending two hours a day sititng reading posts I assume that you are just not happy to own and leave the portfolio to work, you want to enhance, however this is a specialist work, expereince is the key and strength in face of huge selling the other, nowadays that we lack, we have few people who even remeber 1987, so for me I would think that slow and steady one should learn and expereince these markets, that is the best book, the market inner sense comes from those hard long hours we spent questioning moves and implementing strategies.. This thread has come out from many a drops each time when everyone else was calling for 'demise' we have asked and posted in manner that is more becoming of a gentleman trader. dip is an opportunity and you see your level back, and assure you that all highs see new lows with time. It is at dips you when it is the glomiest that one makes most of your money at highs you gradually step out..
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