Options and Covered call writing

This post will have me going into a little more detail on option buying and writing.
Yesterday I purchased a high priced VTL put. In purchasing this put, I knew that the price was too high. What the hell was this put doing at over 5 dollars expiring in three weeks? That kind of price is usually for leaps, or at least 3 months out. But I took it anyway, because it was at the strike that I wanted. But I'm worried that this was just a boon for the option sellers. The stock price is dropping as I thought it would after I analyzed the stock, but instead of the put going up in price, it dropped 25%.
I knew it was wrong going into it. From now on when I see anything hinky with the option price I am going to bypass the options and just straight out short the stock like I did today. In order for us to make money on this put I will need a bigger more significant drop. If we get that, I will be lucky to exit at even money. We hold. And I learn. If you see an option price that is 4 or 5 bucks and is not near the money and expires in 3 weeks, take a pass. Dont let the option writers make money off of you like that.
So what and who is an option writer? An option writer is someone who already owns shares in a stock and has the ability to write calls on it. For example, a guy who owns apple shares can write covered calls on it: He writes a contract that says "For a certain amount of money up front to me, you have the right to buy these shares of stock that I own if the value of those shares rise to such and such price." Its basically a gamble. If the stock does rise to the price, he can get called out and lose his shares for the price that the stock did rise to. If the stock doesn't end up at that price at the agreed upon date, or if it did but fell back down before the agreed upon date, then the option writer gets to keep the money and the stock.
It makes more sense to be an option writer than an option buyer. Most option buyers lose and the stock option expires worthless. Which is great for the option seller. It comes out that 2/3 of the time, the option writers make money with the inverse loss going to the option buyer.
So why am I doing so well buying options? Because I am trading contrarian style. I wait until a stock is overvalued or undervalued to to emotional overreactions because of sudden news and then swoop in and grab the stock or options on the stock for the mis-valued price. Then the next day or two when the market public gets thier heads together and the stock bounces back to the correct valuation, I make money when the stock option bounces back. I am one of the 10% of option players that make money due to this style of trading. Down the line I may start a service where I have option writing recommendations. But at first it will be only with the cubes or other main ETFs for predictability or safety.
While I do run this blog, if you would like a graphical quick look representation of what I do from day to day check out www.the1045report.com. There all my picks for the day are layed out with direct links to my blog, explaining why I made those picks. Both the blog and the actual www.1045report.com page are updated daily. I suggest that you follow me for a while before you jump in and start trading. Also if you are not familiar with options, I suggest you investigate them online. The trading portal I use is http://www.optionsxpress.com/ for my option trading.
More to come including how to trade options online,

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