Understanding Options
Successful stock and futures traders sometimes use options to reduce sisk or protect profits. Serious traders buy options rarely and only in special situations. Options are hopeless for poor people who use them as substitutes for stocks because they can not afford the real thing.
Professionals take full advantage of starry-eyed beginners crowding into optionss. Their bid-ask spreads are terrible. If an option is bid 75 cents, offered at a dollar, you are 25% behind the game as soon as you buy. The expression "your loss is limited to what you paid for an option" means you can lose 100%! What is so great about losing everything?
Professionals are more likely to write options than buiy them. Writing is a capital-intensive business. You need hundreds of thousands of doallars to do it right, and most successful options writers operate with millions. And even theirs is not a risk-free game. Options writers could lose millions in a single bad day of writing naked puts.