What are your top issues and challenges with Option Trading?

[optionsrules]

I had many issues with options...
I have been trading options since 2005 and for years I tried to find the Holy Grail and I was quite slow to realize that directional trading is not my cup of tea. Since I have been trading nondirectional strategies almost all my problems are gone

I think everyone has to pick the strategy to their trading personality. It is the key to success.

 

[holmes16]

i would say there are 3 main challenges:
1.) the extra liquidity risk. options generally trade with larger spreads and lower volume than the underlying instrument. (sometimes, one can get the same leverage by buying or selling the underlying on margin without taking on the same amount of additional liquidity risk).
2.) the extra comms. it's generally more expensive to buy options than the underlying. these comms can really add up!
3.) pricing. options valuation is difficult. with study, one can understand how options are theoretically priced. it's when you try to bring the theory back to the real world that you run into trouble. it's a long dark path, and it's easy to lose one's way. i personally just try to keep it simple. i look at the implied volatility of the option, and i find where it lies on the vol cone (distribution of historical volatilities for that maturity). i use it more as a check to see if the price is reasonable rather than trying to find out what the true value actually is.

 

[dr_trick]

I decided to focus on 3 underlyings (gld, slv, and vxx). That way my research is focused and the correlation to the overall markets means I have macro exposure.

My main issue is how often to trade and how many positions to keep open. For example, I currently have some 6 month options on all three items and I don't know if I should trade some other expiries or sit till I close out the existing positions before opening new ones.

Basically I think I should have more trades to create a diversified portfolio effect but with just a limited set of underlyings.

I'm curious as to how uni-commodity pro traders (e.g. oil traders) go about their day-to-day trading.

Of course their is the other issue of making the right trades.

Thanks