V.3:4 (137-139): Overlooked Trading Opportunities by David L. Caplan

V.3:4 (137-139): Overlooked Trading Opportunities by David L. Caplan
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Overlooked Trading Opportunities by David L. Caplan

Option strategies are, unquestionably, one of the most under-used and overlooked opportunities available to the trader. Properly used, option strategies can provide the trader with significant new trading opportunities and advantages. However, option strategies are currently used only by a small minority of traders. There are several reasons for this.

First, option trading is relatively new—options on stocks have been exchange traded for twelve years and options on commodity futures and cash indicies for less than three. Secondly, most traders are unfamiliar with the mechanics of option trading and their associated strategies. Third, most brokers do not recommend option strategies because (1) they are also not familiar with them and (2) it takes extra time to research the opportunities available. Finally, the most prevalent reason for the non-use of option strategies is the "time and effort" necessary to learn the numerous option strategies and how and when to implement them.

To be a successful futures trader one must, of course, learn as much as possible about the markets one is going to trade and generate a successful trading plan. To make profitable use of option trading strategies, one must not only learn about the underlying market as does the net futures trader, but one must also learn all the mechanics of option trading, the relation of options to the underlying commodities, and the available option strategies and when to use them.

This may seem like an overwhelming task, but, since the option strategist uses many of the same methods as traders of stocks and commodities (technical and fundamental analysis, the risk/reward ratio, money management, diversification, etc.), experienced futures traders can readily learn this type of trading. Further, the advantages of using option strategies are sometimes so great, that it is well worth the necessary time and energy needed to master them. Some of the advantages include:

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