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Options are vehicles to take you where you want to go, they do not tell you where the market is going. You are the driver. They are to be driven by your thoughts, ideas, and time frame to allow you to profit if correct.
There are many trade offs between futures and options. When you understand how options work and know the right strategy for the given time frame, it can avoid some of the pitfalls in futures trading, such as improper risk/reward, getting stopped out, emotional decisions, money management, and letting a trade that did not work turn into a bad trade, losing even more than what would have been made if right...
Unless you know how to use options properly, they will not benefit you, in fact they can hurt you, because you can be right the market and wrong your option strategy and lose money.
The proper strategy and the discipline to do it is a big part of being successful, without that it could be disaster trading futures with unlimited loss potential on a highly leveraged contract.
Again I want to stress that you need an understanding of option strategies in order to benefit from option trading.
Small or large accounts can benefit from option trading, but an account under $25,000 has more reason to use them. Many markets can move $4000 in a week per one futures contract, which would be too big a percentage of risk for a small account, but only 4% of a $100,000 account. Options give an advantage to controlling risk that futures alone do not have.
Imagine if you are caught in a limit move against you with a futures contract instead of an option. Now you are in jeopardy of losing more than you thought because it has opened well past your stop and still cannot get out. This cannot happen when you buy an option. The option losses less percent of its value as the underlying futures price moves against, and gains at a higher rate when you are right. Lose less when wrong, gain more when right.
Options allow you to use them exactly as you want to fit your thoughts, ideas, and time frame. Using the various strategies you can make money if the market goes no where, explodes up or down, marches in one direction, and even make money if you are partially wrong the market. Futures do not offer that. What futures offer is a much more liquid market except for the highly traded options. You are right or wrong starting from the next tick after your entry. Based on your trade thoughts about the underlying futures contract, the option trader must be somewhat of a market strategist to obtain the best results. The more you know, the better your chance for success.
Being long options premium strategies limits the risk and is known while futures present the hazard of uncontrollable, unlimited loss. I believe an important part to trade successfully is this control of risk, Does the price prove you wrong so you get stopped out, or was it that you did not have enough time because of the risk to stay in a losing trade? If you had more time and limited risk, could that trade turn around and become profitable? What you are doing with options works better in my opinion than futures using stops for managing time. The time needed to see if your idea works without the risk of unlimited loss.
I like the fact that with knowledge, options can manage time. Instead of futures that need an exit (stop loss) to control and prevent further losses: therefore lose the right for more time in the trade, the options that you bought cannot lose more than you paid, and BUYS you the time needed to find out if your trade will eventually profit or unemotionally decide that it will not work and exit at that time.
Howard Tyllas Copyrighted 6/5/07
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