"maybe your better off with a buy write strategy instead of thinking your going to get some blow off top kind of profit on some straight premium purchase... think about this
whats the difference between putting up trades that have a 3 to 1.. or 5 to 1 payout percent gain and rolling them out rather then putting up alot more cash for lower percentage returns... the dollar amount is the same.. but the value at risk is alot lower.. i want to ask... what time frame are we talking for this trade? because if your using options you should have this already spec-ed out... meaning you should have an investment time considered.. cause your exposing yourself to time risk when buying options.. IE time premium/theta etc."
Again- more great questions.
I'm not sure what a buy write strategy is. That is to say- I'm sound on the basics of a call/put strategy, and I feel confident there is money to be made with these strategies(I prefer calls to puts though), but the more advanced methods still elude or confuse me.
The difference I see between putting up trades with the 3 to 1 or 5 to 1 payouts, compared to the way deep, and way out calls at a premium, is the insurance.
I'm afraid that if I buy too cheap, just for the higher profits sake, then could I get caught with my pants down, and the stock just wont have time to recover. If I'm forced to roll-out when i'm under water, it will cost a much higher premium than if I simply buy myself time now, while the premium is relatively low.
The time frame in which I believe the stock will rise 20% or more is 4-6 months.
My strategy is something like this:
30k split into segmants.
10k for SEPT and OCTcalls(higher profits, but higher risk if the stock still takes an unforseen dip in the very near future)
10k for NOV calls(a little less profits, but a fair amount of recovery insurance)
10k for MAR13 deep ITM calls. (Maximum insurance if the stock falls unexpectedly, in my limited way of thinking)
If the stock does rise 20% by MAR, then I will still make a 50% return on the MAR13 108.00 calls- this would seem to be better than a stick in the eye.
A big question I have is, What are my biggest risks of buying the MAR13 calls? The only risk I can really come up with is not getting stellar profits, i.e. 200-400% returns.
This is where I hope the cheaper, earlier calls that are closer to the money(SEPT, OCT) will pay the most, especially if I sell at the peaks, then wait for 2-3% pullbacks along the way before getting back in.
If I get up early enough, I may try and use puts for the down strokes, but puts make me nervous, and I've been burned on them. In my mind the market will only go down so much, but will always go up at some point, and continually higher in the long run.
"A big question I have is, What are my biggest risks of buying the MAR13 calls? The only risk I can really come up with is not getting stellar profits, i.e. 200-400% returns."
Oh yeah and the fact that gold could drop 20% and I could lose most or all of my money.
I don't see it though, as long as its been sitting. Just like I can't see gas going under the $3.00 mark again either. I just can't help but think that the dollar is going down and gold is going up, just like it's been for as long as I remember. I want to be in on it, and I'm willing to risk a large portion of my earnings. Thanks for your helps. I get more in 2 sentences from listening to you guys in conversation than I do reading entire books and websites.
"m afraid that if I buy too cheap, just for the higher profits sake, then could I get caught with my pants down, and the stock just wont have time to recover. If I'm forced to roll-out when i'm under water, it will cost a much higher premium than if I simply buy myself time now, while the premium is relatively low."
I have this wrong, don't I? If the price drops a little and I have to do a roll-out, I just buy the new contracts as cheap as I sold the old ones? Then I'm just making greater returns on those new contracts when the price bounces. So in the long scheme of things, roll-outs really are a way of preserving your original investment- as long as the spread is tight, and market eventually gets to where I think its going.
I think I get duhmber by the minute sometimes. Wow!
<<< I'm not sure what a buy write strategy is. That is to say- I'm sound on the basics of a call/put strategy, and I feel confident there is money to be made with these strategies(I prefer calls to puts though), but the more advanced methods still elude or confuse me. >>>
The only reason to use a buy/write strategy,... is if you want to be able to sell naked or cash secured puts as a strategy, but your broker won't give you permission to sell naked puts.
If you don't want to sell naked or cash secured puts, or if your broker will give you permission to sell naked puts, but that is not a strategy you want to use,.... then don't worry about the buy/write strategy.
It is mostly used as a substitute for selling naked puts.
It's just that you are doing it via the back door, rather than going through the front door.
It's a way to select an OTM strike and desired credit you want, and to be guaranteed that strike and credit.
If you can't get both, the trade is not initiated.
