We have arrived at a point where the market is beginning to react irrationally to known factors. The story is starting to change and the level of difficulty has increased a few notches. In my opinion, you are trading through the most difficult market of my 11 year career. I don't suggest that this means anything, but I award you a pat on the back for having skin in the game. Even though I hope it is a smaller amount than usual.

At the moment, we are dealing with a broad based volatility increase in option premiums. Why you ask? Haven't you noticed that every three months implied volatility reaches relative highs? This is no coincidence, this is a product of earnings season. Take a look at this chart of MSTR...

As expectations rise, option premiums increase. As a buyer, this sucks. Essentially, you are paying more for extrinsic value than you were in the past. This cuts into profits, reduces the number of contracts you can buy, and cuts into the returns on successful trades.

During earnings season, I get a lot of "Frequently Asked Questions." Here are the top 3...

"Should I hold over earnings?"

"If implied volatility is high, should I sell options?"

"Jeff, I am not asking if I should hold over earnings, but are you going to hold over earnings?"

2 of those 3 questions are subject to a lifetime banishment, however, one of these questions is important to address as I do every earnings season. Because option premiums are now more expensive, does it make sense to sell them instead?

No.

Remember, this is my opinion and it is in relation to how I trade. I fully understand how complicated it is to trade in this market. However, I cannot rationalize limiting my gains. Even though I might experience more losses than wins in this environment, you all have seen how the big winners pay for many small losses. Therefore, I cannot see how trading in this approach for a strategy that offers limited gains with the possibility of larger losses is in any way more beneficial.

Having given you my own opinion, make sure you realize that I am young, reckless, a born risk taker, and totally different financial goals than most. That being said, if I were in a different position I might be more willing to trade that way. But for those that are on the fence, and are contemplating a selling strategy as opposed to pissing away money trying to buy options in this market climate, here are the reasons why you should...

Higher probability of success

Market/Trade timing is less important

Can be profitable even if prices move against you

There are many other reasons, or benefits if you will, but these are the most relevant. It is true that as option premiums increase in value (volatility) that they become more desirable to sell. However, keep in mind that just because premiums are high does not mean it is smart to sell. If premiums are high, the market expects something. If you know what it is the market is expecting, I still think you have a reasonable chance of making big money buy being a buyer, you just have to be selective in picking your option.

Finally, in regards to the "other" 2 FAQ's... I want to dispel the retarded rumor that I don't hold options over earnings. I do. In fact, I do probably 75% of the time. Should you? No. Not unless you know what you are doing.