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it is
also the riskiest and because the delta is lower in the event it does not reach
the target the gain will be less while having higher risk. I have tried this
method and found that the fear factor is not worth (for me) the extra
potential reward and therefore I go for the higher delta ITM and sleep better,
but if all works out M. Simms is correct. One other item often the price level
stock and the strike prices of the option often factor in. In this case you had
INTC which has strikes every $2.50 many only have strikes every $5 therefore if
the equity price is approaching a strike price level for example say at
50.75 and strikes every $5 it has a significant price and delta difference in
the options. If you buy the 55 you would get a delta of maybe .60, 50's would
have a delta of say .35 and 45's say .20 (all depending on the volatility of the
stock). Now if you think that it is going to 41 the 45's would likely yield the
best but remember for the first $3-4 you will only get .2-.30 cents per dollar
where with the 55's you would be getting .60-70 cents per dollar but the cost
may have been 3-4 times that of the 45's. As I get all the leverage I need even
with the 55's that would be my choice. The one time I change this is at mkt tops
when implied vol. is low and I expect a significant decline I will buy 2-4
strikes out of the money and normally the 2nd month out and let the mkt come to
me and in the interim I also benefit from the increase in IV. This does not work
as well at the bottoms as the IV then works against you. But you need to match
your options to your personality. so for the ramble its
late.
<FONT face=Tahoma
size=2>-----Original Message-----From: M. Simms
[mailto:prosys@xxxxxxxxxxxxxxxx]Sent: Wednesday, March 13, 2002
10:12 PMTo: realtraders@xxxxxxxxxxxxxxxSubject: RE: [RT]
Options are confusing me..............
Buy calls in
the near month with strike price about 5-10% out of the money....unless
expiration is imminent and will be reached before your TIME
TARGET<FONT color=#0000ff
size=2>....then goto the next exp month.
<FONT color=#0000ff
size=2>
In this case,
either 32.50 or 35 April calls.
Example from
today (in reverse using puts).... underlying settled at
31.34
April 30 put UP
55% today
April 32.5 put
UP 58% today
April 35 put UP
38% today
<FONT color=#0000ff
size=2>
If Intel keeps
falling, then the April 30 put will show the highest leverage (largest % move)
as a percentage of the premium required.
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #0000ff 2px solid">
<FONT face=Tahoma
size=2>-----Original Message-----From: Sean Cassidy
[mailto:scassidy@xxxxxxxxx]Sent: Wednesday, March 13, 2002 11:12
PMTo: realtraders@xxxxxxxxxxxxxxxSubject: [RT] Options
are confusing me..............
I have a stock trading system that has done a
very good job of picking stocks for me. Most trades generally last from 3 to
8 days. But........as I have mentioned here....I dont have enough cash to
turn these stocks into real money. So i was thinking options are a good way
to go. Cany anyone advise me of the best way to trade them.....in a simple
easy to understand way?
For example my software is currently telling me
that INTC is a buy if it gets above 31.55...this is an actual signal.
assuming this play works....the stock will rise to 33.55 or so in the next
few days if it gets up to this price. What is the best way to play
this....please keep in mind I am looking for the maximum leverage. I have
been using the system for a year or so and feel comfortable with the
risk.
smcTo unsubscribe from
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