I'm annoyed by hypesters who tell investors that options can be used to produce profits in any type of market. And for a large fee, they would be happy to share their secrets.
The truth is anyone can make money consistently in any type of market – the problem is predicting the future, and knowing what type of market lies ahead. That part is always neglected by those hypesters.
It's easy to tell option rookies that they should 'buy calls' in bullish markets or 'buy puts' in bearish markets, or 'sell straddles' in neutral markets. I'm sure you already know that it's not that easy. In fact, it's extremely difficult to know what lies ahead.
401(k) plans have been decimated. People talk about being unable to retire and how they must continue working – if they are lucky enough to remain employed.
The point is: if it were so easy to generate huge profits using option strategies, more investors would be using options.
Instead of making outrageous claims, I prefer to teach option rookies that options can be used to reduce risk – and there's no need to guess where the market is headed.
Options can also be used to increase your chances of 'beating the market' on a consistent basis. To accomplish those goals, it's necessary to sacrifice something because those benefits are not available at zero cost. The good news is that the cost is not in cash. Instead the cost is usually (there are different approaches an investor can take) accepting a limit on potential profits. To me, limiting profits in exchange for limiting losses plus an increased chance of earning some profit is a good deal. But it's not for everyone.
And that's a sticking point for many. Becoming greedy during the technology bubble near the turn of the century, investors were unwilling to limit profits. Sadly the bubble burst and those who lacked protection lost significant sums.
As the major market averages established new highs, and investors were once again making money, the need for portfolio insurance was once again ignored. It's human nature. No one wants to limit profits in an uptrend, but people get upset when the surprise bear market reappears.
If you never learned to use option strategies to protect your assets, a reasonable question to ask is: Is this a good time to get started, or is the market about to give back a substantial portion of those losses? I don't know the answer. I wish I could help you find the best answer. But, it's a personal decision.
If learning how to insure all or part of your portfolio appeals to you, it pays to learn about options.
This blog offers information to help you get started. Visit my web site and begin with the discussion of the most basic concepts of stock options.
Feel free to post questions as comments.