Some traders like to boast on using complex trading strategies, such as collars and other advanced trading techniques. They are basically multiple positions around the same trade.
In the world of options, it all boils down to calls and puts.
In my short term trading account, I trade options. Short term for me averages from 1 day to 45 days that I own the option. In my last post I talked about one of my tools - BigCharts.com. If the stock chart shows me a stock will likely go up, I will buy a call option on that stock with the intention of selling it within 45 days. On the flip side, if the stock chart shows me a stock will likely go down, I will buy a put option. I don't buy both calls and puts on the same stock at the same time. I Keep It Simple...KISS
Some folks choose to mix calls and puts on the same stock resulting in multiple positions on the same stock. These strategies may work for these folks, but it's entirely more complicated and more expensive than it needs to be. KISS.
They cost you more than what they gain you because of the commissions you pay for having multiple positions on the same trade.
I had a client who wanted to complicate the process for writing covered calls. Writing covered calls involves 2 steps:
1) Buy the stock or ETF in 100-share blocks.
2) Sell a call option on that stock or ETF you just bought.
In the infamous words of Bugs Bunny, "That's all folks."
Well, this client wanted to add another step to the process: step 3 for her included buying another call option on the same stock. When I asked her why she wanted to do this, she said because someone else told her she could do that. I reminded her that writing covered calls involves 2 steps and only 2 steps. I told her she could do what she wanted but her commissions would eat up her profit and more importantly, she's over-complicating a process that's a simple process.
The ultimate conclusion is this: Making a simple process more complicated does NOT guarantee better results.
All the best to you in your investing,
Aneshia
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