One of the most important jobs of any trader is to figure out what strategy or strategies works for them. Just because someone tells you they are making money using a particular strategy does not mean that you will necessarily enjoy the same success as them if you try to use the same strategy.
Everyone has different temperaments, risk tolerance levels, etc. So another important job for any trader is to figure out – or perhaps I should say filter out – strategies that that they are not comfortable using, no matter how good they may look or sound.
Still, if you look at trading as an art form (Important Note: if you look at someone else’s trading strategy as an art form that’s OK. If you start looking at your own trading approach as an art form – um, you might want to take some time off, because I think a serious and unexpected drawdown is lurking in the very near future), it is OK to look admiringly upon strategies that you personally do not use.
Let me give you an example. Michael Gross and James Cordier (www.OptionSellers.com) have been in the business of selling out-of-the-money futures options (and other similar strategies) for a very long time (at least since 1999). Their book, “The Complete Guide to Option Selling” is now in its third edition. A few relevant notes:
*The gist of what they do (and/or advise others about doing) is selling way far out of the money options on various futures contracts, collecting premium and then wait for the options to decline in value due to the passage of time and the lack of a hugely adverse move.
*Rather than relying solely technical analysis and/or option Greeks, Gross and Cordier also incorporate a great deal of fundamental analysis – in other words, they consider the supply and demand situation for the market in question to essentially get an idea of what is least likely to happen. In other words, if a bumper crop of corn (and thus lower corn prices) is anticipated they might advise selling far out-of-the-money call options. Likewise, if bad weather during planting season is expected to create a shortage (and thus higher corn prices) then they might suggest selling far out of the money put options.
*Now here is where it gets interesting: I personally do not sell out-of-the-money futures options. For a variety of reasons I have determined that this strategy is “not my thing.” Despite this I still read every missive I get from Gross and Cordier with great interest. And I usually learn something too. At times I find their ideas so compelling I think about “changing my spots” so to speak. But to date I remain haunted by this simple truth (for me) – “I’m and old dog and these are new tricks.”
The Bottom Line
If you are a futures options trader – or have ever considered doing so – or if you are looking for an approach to option trading that is different than the standard “hey, I am bullish so I am going to buy a call option”, these guys are worth a look.
To see one (impressive) example of their analysis click here
To buy their book or learn more about it click here
To get all the information visit: www.OptionSellers.com
OK, here’s the weird part. For the record I am not endorsing their service as I have never used it (although, also for the record – I have read their book cover to cover more than once). I am merely highlighting a source of consistently very useful, interesting and enlightening information that I have enjoyed reading for many years.
If you are into options, futures, fundamental analysis of commodity markets, or if you are just sick of reading the same old stuff, I believe you may find it interesting also.