Do you always assume 100% loss when you long an option?

Discussion in 'Options' started by turkeyneck, Jun 26, 2008.

  1. So you'll place your "bet" accordingly?
  2. MTE


    Generally yes.
  3. If you buy an option with very little time to expiration, (not a wise way to invest), you can be sure you may end with no time value.

    If you have enough days left, you'll options will have at least some time value, with enough buyers, unless you are too far out of the money.
  4. magicz


    front month DITM = no
    front month ATM = maybe, depend on trend, events.
    front month OTM = say bye bye

    back month(s) DITM= no
    back month(s) ATM = no, you can trade out of it and get some premium back
    back month(s) OTM = same as ATM
  5. Do you always let the position ride into 100% loss since you know the max risk upfront or you'll start cutting if it's moving against you? If so, what's your cut loss strategy for long option if it's not very expensive to begin with, say, $0.5 per option (10 contracts)?
  6. Thats the only way I'd trade em
  7. Generally when you are long an option, you calculate when you'll close the trade, and buy an option that still will have 30 to 60 days left to expiration, so time decay doesn't hurt you as much.

    Holding an option to expiration drastically reduces the change of profit because of the accelerated time decay, even if you correctly forecasted the underlying movement.
    I know this for sure, my short options consistently make money :cool:
  8. cdowis


    You might consider a short vertical instead.

    For example, you expect xyz to go down. Sell the call vertical, and you have time value on your side if the stock sits still.

    For a long option strategy to work, the market must not only move in your direction but also in a timely manner. If it moves slowly, then you will lose money on time decay even if it goes in your direction. If you buy a "far out" option, then you will make less profit on a move because of time premium.
  9. How do you close the long position when it's near worthless with no bid because the stock is moving deep in the other direction? I put in a market order and hope to get filled at 0.05 but no one wants to bite.
  10. good question. I guess you just assume the loss.
    #10     Jul 10, 2008