On Sunday, a friend told me the story of another friend who lost all their money trading stock options. The loser was someone that hooked up with one of the ubiquitous option seminars. This particular seminar taught the strategy of buying option straddles (both a put and a call) ahead of earnings reports. Anyone that knows much about options, knows this can be a high risk strategy.
It is sad, however, I wasn't surprised at the outcome. I don't know if anyone tracks the graduates of these seminars, but I expect the percentage of winners to be lower than the percentage of winning traders that consistently buy options ahead of earnings reports. A few will win, and some that win will do spectacularly well. The odds are another matter.
Options can be used in a conservative, measured approach to reduce risk. Options can also be used to engage in high risk, all-or-nothing type of trades, hoping for a home run. Position size is a big deal when trading options, and many a novice gets way in over their head. Some like the person I heard about lose everything, their entire nest egg in a few months of trading. Be careful out there.
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