It would seem only right to use the BOX if you're trading a box. Just don't get boxed in with the wrong box.
Hey Toby. You got some good advise from MTE & MBradley, ITM LEAPS cheaper than owning stock (with small time decay) and OTM time spreads a way to play a stock that creeps up. Also look at owning the LEAPS and selling an OTM call against it (time-diagonal spread). Time spread and time diagonal spreads bring in a little premium but limit your potential gain short term. kny3
aren't there tax implications for an active trader as defined by the IRS for holding stuff over a long period of time? must it be only a small portion of ones acct or a separate acct than the acct that is actively traded?
Seth, there might be, but that was not what Toby asked for. He wanted to know a few option strategies for intermed - long term outlook on a stock. If you want to know most of the tax treatment for individuals, go to cboe.com and look for a pub called "Taxes & Investing". If you trade full time, get IRS publication 550 (pp 45 to 62 cover some of what you brought up), it's on the net. kny3
Hi kny3, Thanks for your "time-diagonal spread" suggestion! One more question: Just assuming I am able to 'foresee' a stock is going to double/triple in one year time; what is the best strategy to capture this situation? Thanks again!!
if you are sure about the direction you cant beat straight long calls slightly out of the money for leverage. if you are really aggressive you could sell puts to finance the calls.
Hey Toby. I agree with Vhehn, but cheap o-t-m calls (as many as you can afford) and allow yourself plenty of time. If you think the stock will double/triple in the next year, the 18 month LEAPS ('07)should do just fine, sprinkle in a few 8-9 month calls too. Don't need the '08's, more expensive and won't react as favorably as shorter term options. The problem with a spread or time-diagonal that I mentioned, is that there is limited gain potential while the short option is out there. So a time diagonal spread is better suited for a gradual move higher so the short call expires and allows you to move the next short "up & out" - up in strike & out in time. So my recommendation is to buy calls and do NOT sell any calls against them. Selling some a-t-m puts to bring in cash to pay for the calls is good, but keep in mind the margin required for short puts. If you have the cash & love the stock, go for it. kny3 PS If you hit a home run, buy me a beer at Traders Expo
Hi vhehn and kny3, I wish I could buy both of you a beer....oops more than a beer, maybe a fine lunch in Trader Expo Can I ask for more.... what is the best strategy for shorter-term plays; to bet for a stock to move up 20% in one month??
hey toby. This is where you should do some homework. Use a pricing calculator (something simple like the Options Toolbox). Plug in the stock price and test every bullish strategy you can find. The toolbox even recommends strategies by name, but doesn't plug them in for you. You say 1 month, August expiration is 5 weeks away, they should do fine. When you finish those, look at the same strategies with the Sept options to see the comparison between the 2 months. You plug in "what if" scenarios,the stock goes from $30 to $36 a week from tomorrow. There is no "best strategy", well there is but we won't know until expiration, but you need to be comfortable with the risk and potential reward. kny 3