xjo weekend zoomba lounge, page-216

Moola:

On the contrary, many traders use your strategy. Almost 80% of option traders (or self professed option specialists) use your strategy.

The trick is only 20% of them use your EXIT strategy.

Many option traders treat the option as an asset, where as you treat it as what it is, a trading instrument. Much like a warrant, CFD or an OTC instrument.

The option moves in accordance with the underlying asset. You are in effect trading the underlying asset, using another instrument as a cheaper proxy. Many option traders find it difficult to understand that what they are buying (or selling) is not an asset, just a vehicle.

The other 20% use options not as a trading instrument, but as a position bet.

For instance, if I believe the market will not go past a certain point, and BHP will not exceed 40 dollars in the near term, but I'm a little worried about the downside, I can do the following, if I own 1000 shares in BHP.

Sell 2 BHP DEC 4000 calls, Buy 1 BHP DEC 4100 call, Buy 1 BHP DEC 3900 Put - for evens (or a little bit of cost)

That way, I may spend a little bit of money, but up till december, I am secure in the knowledge that I am protected from a fall beyond 3900, and secure in the knowledge that SHOULD BHP explode to 5000, I am still long. If it does nothing and stays between 3900 - 4100, I have bought, for a few hundred dollars, peace of mind for 3 months.

Just rambling, I'm sure I'm telling you something you already know. But you asked a question, and I'm giving an answer.