CC09LawAg said:
My logic may be wrong here, but I have lost my ass trying to buy calls/puts. Entirely my own fault due to lack of discipline with stop losses and what not.
My thought is with selling calls/puts, if you're doing it with stocks you don't actually mind holding, at least if you screw up you still have an asset at the end, even if it's depreciated to some degree - if you screw up buying calls/puts, they expire and you are left with nothing.
Selling puts - must be willing to own at strike level.
Buying puts - must feel confident price will land at expiration below your strike+premiu paid.
Selling calls - must be willing to lose shares at strike
Buying calls - must feel confident stock will land at expiration above your strike+premium paid.
Where people make the biggest mistake is buying calls, because they don't understand gamma or theta. Calls are extremely punishing if a stock isn't constantly pushing up or you are well in the money. Low gamma and low volatility will crush premium. Theta will crush more and more as time runs out. Also, people tend to spend the most money buying calls and puts during volatile time periods like FOMC and earnings.. where even being right can get you wiped out as you bought into high volatility and will be selling, potentially not even in the money, at low volatility.
For those that aren't experienced options traders AND don't have reliable methods that can identify market trends, it's best to stick with buying shares, setting good stops, and setting targets. And then you have to follow through on selling when your target is hit and moving on. Either that, or follow someone who has a good track record of successful options plays and be willing to bank your success entirely on them.
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- I Bleed Maroon (distracted easily by signatures)
