Thsi is in response to a post made by Tech/a over at reefcap, where he enquired as to the motives for trading options over shares.
Well I think this is a great question.
I personally am using options more and more in my longer term trades. (that for me means 7 - 30 days)
Nothing is worse for a short term trader than gaps against his position which may be mulltiples of intended risk. I hate risk!!! And it is a beast that can be tamed somewhat with the use of options.
You can contruct strategies where the optimum outcome will match your view of the particular market. If your view of the market changes, mid trade, you can adjust the position to reflect your new opinion. This is what Charles Cottle calls option metamorphisis.
Trading without stops
I have had some really great profits when my position has NOT done what I thought through this concept of option metamorphisis. For example, a vertical bull call spread can turn into a reverse ratio spread (synthetically) and then finish of as a diagonal bear spread.
I DO NOT use options for additional leverage. My maximum risk per tade is the same as with ordinary shares. However my ultimate risk is known absolutely, with the strategies I like to use, whereas with ordinary shares this is not possible in absolute terms.
On rare occasions I will write naked puts and covered calls, but only on bottom drawer stocks.
Well that my view. Any others?