Read an article today online by a commodity & derivatives guy called When to Sell Options – which briefly goes over the benefit that options traders – and in my opinion weekly options trading investors have with the ‘option tools’ at our disposal. Here’s an excerpt from the story…
Selling options in the current environment promotes flexibility, allows the trader to better withstand volatility in the marketplace, and is a much better strategy than trading equities or futures outright.
The newscasts this week are full of contradictory reports and editorials. Days the markets are down, doom and gloom abound. When the markets rise, the worst is over—happy days!
Some of their points are valid, while others are simply for shock value. I think there are a couple of key points remember as we navigate our way through this.
First of all. I do not believe we will have a repeat of 2008 here in the US. The major subprime, de-leveraging, and balance sheet issues of our “Too big to fails” have begun to be addressed. In other words, here in the US, the fumigation process has begun.
Overseas, they’ve just begun to turn on the kitchen lights. They’re no longer able to assume that the only roach they see is the only roach they have. As a result of their shared economy, we’re watching the blame game while they assess responsibility for their problems. This is most clearly seen in the Societe Generale (SCGLF) liquidity rumors of last Wednesday’s trading, followed by the instant questioning of the rest of the Eurozone’s banking heavy hitters like Royal Bank of Scotland (RBS), Deutsche Bank (DB), and Barclays (BCS). Does this remind anyone of Shearson (Lehman Bros.), Goldman Sachs (GS), AIG (AIG), etc.?
Traders choosing to participate in these markets may want to participate in the options market rather than directly in the equities or futures arenas. Options allow market participants to trade a general idea, rather than actual chart points. Being able to trade the idea allows us to withstand a higher degree of volatility while still maintaining our general investment thesis.
One of the things I like most about trading weekly options is the ability it gives us to get in and out of the market for these brief time frames – where we have the ability to to just ‘poke our heads’ into the game and have a realistic chance at pulling some income out – without getting ‘locked’ into a trade long term – like has happened so many times when trading the traditional monthlies. Once we commit with a monthly trade – depending on what occurs in the market or the world – it is possible that we back ourselves into a corner where we have to wait and be in the trade all the way to expiration – where as with the weeklys we can get in and out quickly and effeciently -as well as ‘duck’ and ‘dodge’ potential market moving events – without having to ‘wait out’ the entire month.