The Only Time We Buy Options When Trading

Buying options is extremely risky for a number of reasons. Firstly, you need to make sure that the vehicle/instrument you are trading is liquid. This gives us the best chance of getting in and out at the price-point which you want. Then you need to make sure that you are being as precise as possible with your entry. Remember when buying options (especially out of the money options), you need a big move in the price of the underlying in order fo the option to gain value.

To give you an idea of the risk you are taking with an OTM option for example, the seller of this option can make money off you if the price remains the same, goes up a bit or goes down. You are betting against the house, so to speak, which is why you need to be ultra careful.

The only way we would consider buying a call or put option is if we can finance the purchase with something like a sold put. In this video, we explain how we set this up.

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