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Option Trading. What are the pros and cons?

Updated on March 13, 2015

What are the pros and cons of option Trading anyway?

One thing Option trading is not is Day trading. Very often I have found that people have this confusion and they should not. Option trading is using options rather than stocks to either sell or buy contracts on stocks that give you much more leverage than you would have just buy buying the stock. Like everything when it comes to the stock market, there is no holy grail and no matter what you do, including Day Trading there is always an upside and a downside and nothing is easy.

Many years of mostly writing covered calls, which means you sell an option on a stock in the hopes that the stock does not movie that much so that the stock will not be taken away from you, I found that you have too many winning stocks that are sold from you and you lose those gains, so after a long time I realized that this is not a very good strategy.

My new strategy has been using Bull Put Credit spreads to try to generate income in my account. I enjoy this strategy and my record keeping with MS Access helps me keep track of the many complex calculations that I need to know where I am profiting and losing. This strategy is very good when times are good, but even with the insurance I buy in the form of PUTS that I buy, when things go badly like they did last October with the Ebola crisis, things can get quite difficult even when I was taking many profits by selling the PUTS I bought for insurance and lowering their overall strike price.

Despite the bad times I have had I still believe that this option strategy is far better than buying stock and then writing covered calls against them. I do like the the feeling I have when the stock market goes down and i have insurance covering me, but then the question becomes when does the insurance I buy cost too much to make an overall profit. To say the least this is not a perfect strategy and i have still not everything out yet, even after 2 years and many trades.


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