Time Is Money In Options
The cliche, "time is money" perfectly describes the options game. Every day that goes by, options experience time decay. If you are a buyer it takes money from your account, if you are a seller it adds money into your account. The financial markets have changed drastically in the last 10 years when not many people understood options very well. This allowed market makers to make money off simple bid ask spreads because value of an option wasn't fully understood. As markets became computerized and computer models began pricing options the bid ask spread evaporated as the market was fairly priced. The market makers and floor guys started looking for new work as the markets became more level for even the novice placing their first trade.
High volume underlyings like the SPY, DIA or QQQQ and other high volume underlyings have virtually perfect pricing. Enormous sums of money has been spent on programmers and computers to guarantee that there is no money left to profit from mis-priced options. High Volume Indexes at the money can have bid ask spreads of as little as a penny. This shows how liquid and fairly priced options have become.
The options market today offers no free lunch. You will have to take risk to make money. Because options are fairly priced, the method and strategies employed are going to be the difference between profits and losses. Buying a call option or selling a call option have statistically similar risk reward characteristics. For example you may sell a call or $0.10 that has a 85% chance of expiring worthless allowing you to collect $0.10 but the buyer of the .10 call has a 15% chance that he will profit and perhaps double or triple his investment. The seller of the $0.10 call option may lose $1.00 or more for the relatively small reward of $0.10. The seller only needs to be wrong once to lose allot of money while the call buyer can afford to lose many more times until they get a home run.
Time is your enemy or friend depending on which side of the trade you take. Ultimately, options trading is like any other type of trading in that you need a plan to be successful. If your plan does not include money management, method and psychology, it will make it nearly impossible position to consistently profit.
The fastest way to become a successful options trader is to become a good student. There is no shortage of free resources to learn options trading which are quite good in many cases. The Chicago Board of Exchange has an free online courses and even offers certificates for completion of a course. The CBOE is an excellent source for the basics of options, but if you want a proven strategy, you should consider Trading As A Business Trading System. Its' all video that shows real trades in detail. You can't go wrong with investing in your options education. What you learn from a trading education will pay for itself 1000 times over. The money you won't lost by good training will amount to a small fortune.