Covered Calls and Cash Secured Puts (Part 5)

In part 3 of this blog series, I discussed why CC and CSPs are less risky than outright stock.  Why don’t more investors make use of them?  I believe an inherent fear of options within the retail trading community has capped their use.

I have spoken with a number of stock investors over the years who have bulked at the mention of option trading.

The fact that brokerages have historically limited or disallowed option trading in retirement accounts has probably biased some traders against them.

Searching the Internet for “option myths,” I found a few articles that address the fear.  Here is one:

> If you received or read a disclosure from your broker about options
> trading stating that trading options is dangerous and you may lose
> money, do not believe it. If you know what you are doing and what
> to expect from options, they can be very safe and they actually can
> be less dangerous than trading stocks themselves.

In this second article, Michael Sincere discusses it:

> Myth #1: Options are too risky
> …
> Myth #2: Options are difficult to understand
> …
> Myth #5: Options are the cause of stock market crashes

Here is a third article that also addresses the fear of trading options:

> Myth #1: Options trading is only for professional traders with
> years of experience.
> …
> Myth #3: Option trade execution is a rip-off.
> …
> Myth #5: Option trading is for older and wiser investors only.
> …
> Myth #6: Option trades are difficult to execute and should
> only be handled by professionals.
> …
> Myth #8: You have to spend thousands of dollars to get a good
> options trading education.

I would recommend reading the second and third articles in full as they cover some really good informational content.

Bottom line for today:  some apprehension toward option trading and therefore toward CC/CSPs does persist.  This may help to explain why more traders don’t use them.

In my next post, I will offer an opposing viewpoint.