anxvariety, I read Chris’ post earlier, and he did not say that options trading is irresponsible. Here is what he wrote:
“Well, If you want volatility, my daily trading service for Bond Futures has it, LOL! It does not however, have volatility that extreme, unless it is maxed out irresponsibly. With options you do risk the full amount, and hence get the big leverage.”
But then he said he only puts in 5% into any one trade. Plus he has stop losses, so he limits his exposure.
You and I are amateur investors, although you have more experience than me since I have never traded options. Perhaps you have more experience in trading overall. But I will defer to Chris, since he is a professional trader, and I know from finance courses that higher returns encompass higher risk. I do not believe in easy money of options.
While you got lucky with the COP option, if they had expired worthless, you would have lost all your money. I on the other hand still would have my COP shares, and if they ever came back above $60 purchase price, would make a profit. I could even lose a few dollars per share, but overall my risk is less so my potential for profit is less, and my potential for loss is also less.
There is a reason that Zeal puts the options into its Zeal Speculator newsletter, which they emphasize is for high risk traders and speculators. In the Zeal Intelligence newsletter (for conservative investors) they only recommend buying shares, i.e. long positions. No puts, calls, options, shorts.
Zeal was lucky that COP options worked out. If the market had turned against COP during the last downturn, or when the gas prices went back down, then those could have expired worthless too. I am reminded of RighSide, who is shorting LEND. Although the long term prospects for COP are good and for LEND are bad, when you buy shorts and options you have to be right on the price and the time. You have to hit TWO targets. So a much higher risk of being wrong. RightSide is taking a big chance on shorting, because LEND may not go down in the amount and in the timeframe he thinks.
Since 90% of options expire worthless, you have a 90% chance of losing ALL your money when you buy options. Pretty risky…
This was an interesting debate, and I thank all who participated.
