Have you bought an OTM option for the home run?

Yes I've bought options, got burned badly, VERY badly. So no home run.

 

I once bot Goldman Sachs calls 18 months out (280 strike with the stock around 170). I paid approximately $12 for them. I sold them a month later for $28 and the stock was unchanged. That's the power of implied volatility.

 

Well, I almost never buy ITM premium (very rarely I'll use high-delta puts in lieu of a short on the outright), so yes, whenever I buy, they're OTM. And my ordinary target is 200% + on anything long.

On expiry Friday, sometimes I'll play penny options looking for a move across a strike. Had a 300% winner of this type last week....except I didn't have the margin left to exercise and could free it up--so I had to close during market hours rather than shorting and exercising. Ended up scratching it. A few months ago I did the same thing on MSFT....bought some expiring options for .04 and ended up shorting the shares and exercising for north of 1200%.

But the vast majority of my positions are base hits...not swinging for the fences. But at least a few days every week I will have orders fill rest until close that are just looking for very good prices on long shot options. Taking a rebate and not paying the spread vastly improves chances on these types of plays...and payout if they work.

 

I'd imagine nearly every amateur/self-funded option trader has, or at least that's what I tell myself at night

 

Why did IV spike?

 

I hedged long calls in SVXY with equal # long puts the day it crashed in February. I didn't go for equal original delta, just the delta at the time I hedged. Once trading reopened the calls were of course worthless, but I netted a nice profit on the overall trade with the puts. I can't recall, it was something like 3X or so.

 

That said, almost every "home run" trade I've tried is a loser, including hedging. I am much more conservative these days.

 

Buying DOTM options is like venture capitalists investing in start ups. For every 9 Theranos, all you need is one Facebook or Google. So, success rate need not be high, just that the wins have to be huge to make it worthwhile. And like venture investing, not all venture capitalists can score like Kleiner Perkins.

Due diligence is critical.