Options can be used to limit risk.
What this means to me:
Options are a tool and can be used to change or create different risks for trades.
What this belief gets me into:
Learning about option markets and pricing of options.
Learning about the different price characteristics of options.
Looking for ways to limit my risk.
Looking for complex solutions to simple problems.
Determining (some of) my risks when I put on a trade.
What this belief gets me out of:
Accepting all the risk for a trade.
Complexity can create knowledge or vision gaps, so using options may keep me from understanding the larger vision of a trade and how it might turn out.
Taking full responsibility for a trade (The option has me covered.)
Options are not available for all markets, so this could keep me out of markets without them.
Limitations of this belief:
Not all risks are covered by options. Options introduce another level of complexity to the market and trading systems.
Utility of this belief:
Knowing about options can create new trading systems, positions sizing strategies, and offer protection from gaps.
Options are a two-edged sword: they offer advantages and solutions to certain trading issues while also introducing complexity and greater knowledge requirements. The complexity creates more opportunities for mistakes but also may create more trade opportunities. Limiting risk is a useful application of options, however the realm of options raises many more issues to explore and clarify.