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Should You Be a Buyer Or Seller of Options?
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Well that really depends on your trading skills and your view of the markets.

You see if you buy options then you are buying a wasting asset. By that I mean the option will expire at some point in the future. Every day your option decreases in value (also known as time decay). And the amount of this time decay really depends on how long there is left until the option expires. If you buy an option with over 200 days to expiration then the time value decay will not be a lot on a day by day basis. If you have an option with only 20 days to expiration then your time decay will be a lot.

If you buy options you also have a view on stock or market direction. If you buy a call you think the stock will go up. If you buy a put then you think the stock will go down.

To make money you have to be right on this direction straight away and make sure the stock moves more than the amount of the premium you paid for the option. Trust me this is not as easy as it sounds.

If you sell options though then you benefit from time decay. Each day that passes you collect some more of this premium.

You also do not need to necessarily have a view of stock or market direction. You can make money whether the stock goes up, down or stays where it is. By selling options you then have this edge.

Of course selling options should always be done correctly so as to limit your risk.

The best way to do this is selling options by the use of spreads.

If you are unfamiliar with spreads then you must learn more about this wonderful technique.

Article Source: http://EzineArticles.com/?expert=Jack_Berkley

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Article Submitted On: October 28, 2009



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