Options has attracted many investors because the "LEVERAGE" factor. By buying Options, investor will have 'LIMITED" Risks and "UNLIMITED" Return. This means that you can pay a certain amount of premium (depending on the volatility) to get Unlimited Return when the stock/underlying assets is moving based on your expectation.. Good, isn't it?

However you must be very CAREFUL on Buying Options and the followings are the consideration:

1. Options is a wasted Asset.
Every assets are subject to be depreciated, based on the their categories. Indeed, there is asset that can not depreciated such as land. Every Options contract has tenor, and options value will be substantially reduced approaching the expiration date. This is what we call it "Time Decay" factor. I am really reluctant to buy Options that have high "Theta", which is Time Decay is very fast. Many Options seminars teach the student either to Buy Call or Put Options to cultivate the gapping of certain stocks before earning announcement. Some of them even suggest to make "STRADDLE" position, where you have to buy Call and Put options with the same strike price in anticipation you can hit the big bucks no matter the stock will gap up or down. Nevertheless, they never talk about suggested options tenor that must be bought. As I said, on one month options tenor, Theta is very high and Time Decay is against to all Options buyer. By buying Straddle without knowing momentum and volatility, it is a recipe of loosing the trade.

2. Even the STOCK is running to your direction, but the OPTIONS value does not Move.

Many investors do not know why the options value do not move as their expectation despite the stock is moving onto their direction. Options is a derivative product and it is quite complex. The options value is calculated based on "Theoretical Options Value" (such as Black Scholes, Binominial model) and there are many factors affect the value%u2026 such as interest, tenor, strike price, dividend, etc. So, before buying options, you have to know "Delta" or the degree of change in option premium in relation to changes in the underlying stock. Many investors want to buy cheap options with the expectation of having Unlimited Return. Well, this is definitely wrong. By choosing OTM (Out of the Money) strike price, you will have higher breakeven (in case of buying call option), therefore, the stock must increase higher than your expectation.
The OTM Call Options usually have lower delta less than .50, and this means your option value will increase very slow compare to stock increase.

3. Even the Stock is running to your direction, but the "TIMING" is wrong.

Many Option buyers want to cultivate momentum when stock is gapped up or downward and they buy one-month options since it is cheaper to do that. This is what usually a seminar teach people to see which stock candidate that will bouncing up or down after earning announcement. Well, it may be right that due to good earning result, stock is increasing and running to their direction. But most of the time, the timing is wrong, means the stock is running after the option is expired. The direction bet is right, but the timing is wrong, and this is happening again and again%u2026.

4. You buy the Options very Pricey%u2026.

Every trader or investor will look buy low and sell high. This is what is also work for Options. Options buyers will seek the options value increase substantially so buy low option value and sell it higher. But, some investors buy options not considering options price when they buy it only looking for momentum that they predict. When earning announcement is still pending and nobody know the company's result, "greed and fear" are influencing the market and usually this drive the implied volatility and the options price. Nevertheless, when the momentum is decreasing (or no great news anymore), usually volatility is down and also the options price. For option buyers who is using momentum to bet, they usually loosing the trade when volatility goes down.