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This afternoon we will be talking about traditional ATM (At The Money) option trading strategies. Is it true that they work? In my opinion, “they do work” but then in a long-term “they do not”. What we are really talking about here is first of all, what are the income choices strategies? The most usual ones are: the Diagonal Spread, the Calendar Spread, Credit Spread, the Iron Condor, Covered Calls, and Butterfly Spreads.

All the Option Strategies mentioned earlier have two things in common. They all try to take advantage of time decay; in other words these strategies try to make money every single month from having a positive Theta position. We won’t go into the Option Greeks in this article; you have to keep in mind that Theta is a dollar amount that option traders collect each day that they are in this type of trade.

The second thing that all of these strategies have in common is that they cannot withstand a large, one day move in the market or a 10% move in one week. Any significant move in one direction will destroy these types of trades. This is the problem with all option income strategies. They work for a while, but then the day comes when they wipe out most of your trading account.

If you’re an experienced option trader, you know what I’m talking about. For example, if you’ve learned to trade the Iron Condors, and you’ve been trading the strategy for several years, you know your long term success is dependant on a certain amount of chance. True success comes from your ability to be lucky enough to not be in the stock market when we have a large move. Anytime there is a significant, directional change in the stock market, this strategy will always give up many months worth of returns.

Like the Iron Condor, a Calendar, a Butterfly, a Diagonal, a Covered Call, all these strategies can eventually cause disastrous losses to your trading account. They may work two or three months in a row, but eventually they’ll have one really bad month that will ruin all of your previous efforts and returns.

If you prove to be incredibly lucky, or have found a way to somehow avoid the stock market movements, then you can find great success in these strategies. However, we normal traders will never be able to tell when the market is going to gap, or when the market is going to trend in one direction for multiple weeks in a row.

One more serious problem with your ATM option strategies, typical income type, is that they tend to lose when the market becomes volatile. If the market starts to go up and down, then the option trader is forced to adjust their positions constantly. The trader is exposing his portfolio to tremendous (insurmountable) damage when the position is not adjusted. So, as the market goes up an down, and the responsible option trader makes adjustments, there is no way to make money. In mostly all cases, volatile months become losses.

These are the inherent problems with the popular, option income-strategies and are exactly why I no longer trade them. I tried for many years and had my share of success, but I found over time I wasn’t getting anywhere. That’s when I decided that I would be happier if my portfolio went either sideways or up. Now when I trade options, I do have some months where I might not make anything, but the important thing is that I’ve found a way to avoid loosing money too. I’ve found this style of option trading to be more successful over time than trading the traditional strategies.

I hope I have given you insight to why you may or may not be making money on the stock market with your option trading style. You should really consider learning lower draw-down techniques that San Jose Options is teaching, if you understand what I am talking about. Thank you for reading this article.