I do not like to invest in options. My reasons are:
- The price of the option is decided by an expert who takes the other side of the trade. This expert is likely to fix a price that will give him a profit (after allowing for the future possible outcomes). As the other party to this "bet", the retail investor is likely to make a loss.
- It is possible for the option issuer to manipulate the price of the underlying shares to avoid making a loss. For example, if the option pays out a large sum of money when the underlying share hits a certain price, the option issuer will buy or sell the underlying share to avoid hitting the strike price. The cost of buying the manipulating the price of the underlying share will be lower than the payout on the option strike.
If a retail investor wishes to speculate, it is better to buy or sell the underlying share, rather than buy an option. For long term investors, it is better to buy blue chip shares and keep for the long term to enjoy the dividends and the long term capital gain (and forget about short term fluctuation in the share price).
Lesson: Do not invest in options or other derivatives. Buy or sell the underlying share. Speculating in futures is all right, as the price is a direct reflection of the underlying share index.