Option Sellers Beware.

Mark D Wolfinger on the folly of buying options.

Don’t loose all your money is manifest, yet too many new options traders find themselves walking home from the track rather than sipping champagne in that limo they dreamed of.

Not understanding that option trades require both speed and direction to be profitable is often quoted as the number one reason why option traders loose money, it make it in to my list at number two.

There’s never enough time to do all the nothing you want. How many times have you heard people lament about not having enough time? There is never enough time, except in those long summer days of youth. Options allow traders to buy enough time and to be successful you must take advantage of this.

Conceptually only buying OTM options is the same as mistake three, not buying enough time. Beginning options traders think that by paying less for their options they are protecting themselves from losing all their money. However, the complete opposite is true. Most things in life that are cheap are pretty worthless and the same goes for options.

The entire options industry is setup to convince you selling covered calls is a conservative strategy. If you look at the option trading levels below you’ll see covered call writing only requires the lowest level of option trading approval, level 1. Most brokers and option advisors will recommend you start option trading by writing covered calls. Despite what your broker wants you to believe, I’m here to tell you that writing covered calls is NOT a conservative strategy.

Is it possible to find an option strategy that delivers a swing at a home run, an 80% chance of 100% and a known limited risk? You bet it is.

A LEAP debit spread has two forms a calendar spread and a vertical debit spread. It is the vertical spreads which I consider a fantastic tool to add to your options toolbox.

Believing you can profit by buying undervaled options and selling overvalued is a common mistake. At it’s heart is arrogance; a belief that you are smarter than all the other options traders out there.