Overview: Duane gives an overview of a couple of the most popular option trading strategies: Naked Puts and Credit Spreads. He points out the risks involved with these strategies and why they may not work so well in volatile markets.

In today’s issue of Talk Wall St. by San Jose Options we are going to discuss the differences between trading stocks and options. First, let’s talk about stocks. As most investors know stocks are directional vehicles. If the price of our asset goes up, we make money. If the price falls, we lose money. Well, that is true if we are long the stock. If we are short the stock, then we can make money when it drops. Anyway, whatever your position is on a stock, it’s directional. One direction we make a profit and the other direction we lose. With stocks, we don’t focus on time or volatility in the markets, we just worry about the way the price is moving…up or down.

Let’s discuss the complexities of options and how they differ from trading stocks. First of all stocks are simply one-dimensional trading vehicles, the dimension of “price movement.” For example, one can go long a stock if he/she is forecasting a rise in the price of the underlying asset. The stock trader doesn’t need to worry about time or changes in volatility affecting the outcome of his trade. The stock trader only needs to focus on the asset’s price movements.

Today while still searching for the secrets of making consistent returns with option trading, I had an interesting conversation with an option trader. Many things he told me about I agree with him absolutely.

I want to share with you today how credit spreads turn my trade profits into the air. I wish to discuss with you the significance of adjustments and what the risks involved are if you fail to manage your option positions properly.