The thing about options is you need to take into account what
premiums you're paying, loss of option value due to time
degradation. The longer the underlying doesn't go in your
direction, or if it trades flat, the faster the option value is
going to go down as it gets closer to expiration. Your options
could expire out of the money depending on the month and strike
price that you took out. The SPY system could stay in the trade for
over a month. Make sure you take that into account when you decide
which options to take out (month, strike price, at-the-money,
in-the-money).
Another way to play options is to be an option writer. I'm going
to write options from time to time when playing the SPY system
depending on the situation. There are certain big advantages to
writing options over buying options, and some disadvantage too, but
I wouldn't recommend them without having a deep knowledge
first.
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The thing about options is
SPY System
Posted by cw12 on 5th of May 2011 at 12:58 pm
The thing about options is you need to take into account what premiums you're paying, loss of option value due to time degradation. The longer the underlying doesn't go in your direction, or if it trades flat, the faster the option value is going to go down as it gets closer to expiration. Your options could expire out of the money depending on the month and strike price that you took out. The SPY system could stay in the trade for over a month. Make sure you take that into account when you decide which options to take out (month, strike price, at-the-money, in-the-money).
Another way to play options is to be an option writer. I'm going to write options from time to time when playing the SPY system depending on the situation. There are certain big advantages to writing options over buying options, and some disadvantage too, but I wouldn't recommend them without having a deep knowledge first.