|
PureBytes Links
Trading Reference Links
|
John,
You're absolutely right. There is lower risk and a higher
probability of making money on options the further you go in-the-money
(ITM) and the longer the time to expiration. The further you go
out-the-money (OTM) and the closer the time to expiration, the higher
the risk and the lower the probability of making money - but the
greater the leverage if you do get the big move. I usually buy ITM
LEAP options to increase my probability of making money, but In this
case I wanted the leverage so went OTM. I considered this as
insurance against the long positions I still had if we did get the big
drop. We did get part of it today and you can see the result. I got
in at an average price of 1.5625 at this mornings open and it closed
at 3 for almost a double today. Just wish I had bought more <G>. I
haven't looked at the Dec 47.50, but doubt if it doubled, although it
may have. The real payoff will come if WCOM continues to drop and the
options start to rise at the in the money rate. As you can see the
leverage is significant.
I'd never consider a naked call position because of the margin
requirements, but I did think about a credit spread (Sell the Dec 40
call, buy the Dec 47 1/2 or 50). However, I decided to just keep it
simple and buy the put.
Jim
-----Original Message-----
From: John Manasco <manasco@xxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Sunday, August 30, 1998 5:01 PM
Subject: Re: Weekly Pick
>Jim
>
>Suffer me for a moment since I'm new at this options stuff. If WCOM
does
>go to 38 in the next few weeks then yes the Dec 40 put will double,
but
>the Dec 47.50 will go from 4.250 bid to about 15 to 16 in the same
time
>frame. And since it has a delta near .45 it has a much better chance
of
>making money IMHO. Granted your exposure is less with an OTM put but
>your chances of making money seem to be less also. That doesn't mean
you
>won't make a ton, just that it seems to me the probability is less.
>
>If you're really up for indigestion how about selling the Sep. 47.50
>calls for the same premium you're buying the Dec 40 puts?
>
>John Manasco
>
>Jim Greening wrote:
>>
>> I don't intend to hold this position
>> very long, but also don't want to lose a lot of time value each day
so
>> I compromised and looked at the December put options. Since I'm
>> expecting a sharp drop to under 40, I decided on the Out of The
Money
>> (OTM) Dec 40 Put options ( LDQXH - Bid 1.375, asked 1.625). Going
>> this far OTM gives me much greater leverage at increased risk.
>> However, the amount at risk for 1000 shares is small compared to
the
>> amount at risk shorting the same number of shares and the reward
for a
>> large move is essentially the same. The problems come if we don't
get
>> the large move <G>.
>>
>> Jim
|