Trading options is daunting, they are very confusing, there is a lot of math involved, so why bother? Because they are a great alternative way to be able to capture opportunities when the underlying instrument will not have much movement. That is what I am using to be short the bond market – March 125 TLT puts, as explained here.
There is a lot of leverage in options, but unlike futures, you aren’t risking more than you put in, assuming no margin on the options. They are a price leverage vs account leverage vehicle, just like the small stocks which I love to trade. I actually prefer the small stocks overall, as the % gains are just as powerful. But some people want to trade the “bigger stuff”, so options are a way to do that with more potential movement relative to the price.
I explain my way of trading options, and how I deal with the daunting math portion of options. I did not go in depth with all of the details, if you’re interested in this stuff, here’s some info and you may want to read that explanation first.
I did a second video to expand on this, I’m trying to keep these videos much shorter.
Hi Scott, thank you for the Options discussion.
My experience has with options and risk management has been horrible, either win big or lose it all. I see the value of closer to the money trades as I can exit a position right away that move against me without so much slippage, to have a more limited downside loss exposure. It’s finally sinking in the huge necessity of cutting losses super short. Thanks!
Dave just the fact that you were in there and doing it, so important. You have the experience, good or bad, but you know where/how to begin to hone your approach. And yes, I didn’t stress that enough. I always go for the most active options, one of the first stats I look at is the volume traded.