From David L. Caplan's book...
>>>Options were chosen as our trading vehicle because, in addition to being able to take advantage of trends similar to futures traders, other characteristics of options provide us with opportunities to gain a "trading edge" over the markets. These opportunities include:
1. Using option positions that have a better risk/reward than a futures position to follow market trends;
2. Purchasing low volatility (commonly called "undervalued") options;
3. Selling high volatility ("overvalued") options;
4. Combining "undervalued" and "overvalued" options in option spread strategies; and
5. Using the "time decay" and "limited risk" aspects of options to our benefit.
These are some of the ways we find using options can improve the odds in trading to our benefit beyond that of trading only net futures positions.
The great thing about trading is that THERE IS NEVER A SHORTAGE OF NEW OPPORTUNITIES!
We just need to patiently wait for the right time, and new opportunities will arise to enter the markets.
Instead of guessing or "predicting" like others, we prefer to have the "market tell us" when its ready to move by its trend, improved technical pattern, reaction to news, increased volatility, etc.
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We would be alert to take profits when 75% of the premium was collected, not waiting to collect the last dollar.
Often, when an option becomes close to worthless, traders leave it on wanting to get the last few ticks. This may work great 90% of the time; however the one or two times it doesn't, may wipe out all of the previous profits.<<< |
