1. 80% of all options expire out of the money or worthless!
2. Most individual option traders trade based on sentiment rather than the facts.
3. Most individual options traders use emotion rather than strategy to guide their trading.

That's why 95% of individual option traders lose money.

There will always be reasons to buy options, however if the goal is to simply "trade options for capital gains", then there is really no other way but to sell options.

The cards are always stacked against the option buyer. First, the option buyer must guess the right direction that they believe the stock will head. Stocks move up and down, and sometimes no matter how positive or negative the news on a stock, it still defies conventional wisdom as to direction. So "guessing" direction is a monumental task!

Secondly, even if you were somehow able to "guess" direction with an almost "oracle-like" accuracy, it is not enough that a stock hits or surpasses your strike price. It must increase to a point beyond your entry, to make a profit. Even if the option is in the money, it must still be greater than what you paid, in order for you to make money.

Thirdly, this must all occur before the expiration of the option. So not only must you "guess" the right direction, and be right on the "amount" of the move, but you must also be right about the timing of the move!

Unfortunately, most option traders trade based on sentiment rather than fact! The facts are what is written in black and white. If traders were to trade options based on fact, then there would'nt be an options market.

Let me explain...

As I mentioned before, the price of a stock is determined by supply and demand. At any point on the scale, all information is already priced into the stock. If new news breaks, it will at that moment be priced into the stock. Because, if more traders decide to react to the news in a positive way, the stock goes up, and if more traders decide to react in a negative way, the price goes down.

So when someone buys or sells an option, that person is betting that more facts about a stock, which are not already disseminated through regular chanels will drive the stock in their desired direction. Now unless this trader is trading based on some insider information, they are really just gambling. Since the facts are already on the table, sentiment (like a feeling or a "hunch") is the only other reason to buy an option.

There may be other reasons to trade options for the option buyer (protection, desire to own a particular stock, etc), but why would any option seller sell these obligations without believing that the stock will not move in the wrong direction.

Traders in general are very emotional. When the market is trading in their favor, they feel fantastic, when the market trades out of their favor, they are down in the doldrums. Such is life on the whole. However, these emotions have no place on the trading playing field.

When these emotions are brought into trading, the loss of control is not far behind. For example, say you are deep in the money on one of your trades, reason dictates that you should take a little off the table, if not the whole position, just in case a reversal occurs.

Or, on the opposite end of the spectrum, if a trade is going out of favor, logic would dictate that you should sell a portion at a loss if not all, to avoid turning a small loss into a devastating Loss.

Most traders do not follow a regimented trading strategy! They simply make it up as they go along. This can be disasterous for the beginner, and lead to some serious drawdowns for the professionals.

So how do we solve these 3 problems?

With our trading strategy, we approach these three problems and attempt to solve them in the following manner:

1) We sell options which have a high probability of expiring worthless. Since time is always on our side, we simply sell and wait for them to decrease in value to our pre-determined level, or expire worthless.

2) We analyze the facts about a stock which are present at that very moment. When we are satisfied that we have a good candidate, we trade options on that stock which meet our criterior.

3) We institute a fixed trading strategy, without any ambiguity to sell positions which are outside the predicted trading range. And, for those times when these positions trade out of favor, we use special trading techniques to increase profitability.

With our Investment Philosophy of always staying neutral, we can solve these problems relatively easy, and are able to consistently make enormous returns!