Option Trading Concepts to Help You Build a Solid Foundation

5. "Time" versus "Timing"

Traders are used to hearing that "timing is everything." And this pretty much sums up what trading is like for futures traders. That is to say, profits accrue to those who go long when prices subsequently rise as well as to those who go short when prices subsequently decline.

The ability to generate profits in excess of losses, however, eludes most futures traders because markets behave erratically, forcing traders out with losses before they have an opportunity to capture profits.

Options traders, on the other hand, have the luxury of focusing their attention on "time" rather than "timing." The implications of this are significant:

1. "Time is on the trader's side" who establishes a bull call spread or a bear put spread because the longer it takes for a market to move the desired way, the more the profits approach their maximum (provided the options don't expire).
2. Unfavorable market moves don't "shake a trader out" of his positions as readily as they do a trader of futures contracts.
3. A trader can assess the likelihood a market will move up or down a particular amount over a given time interval as opposed to trying to guess when a market will move or which way it will move. Timing market moves and forecasting market direction, then, is not necessary for those who make decisions about the magnitude a market is expected to move in a specific time period.

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