That would be a piss poor hedge. Stop loss strat, maybe -- I dunno. I wouldn't want my money to zero out on purpose; flat yes, worthless no.
That's what draws most option virgins into the options game. Lottery ticket mentality. Yet MOST lose money buying OTM options. I'm speaking from experience. I lost more cash buying OTM calls than any other "strategy" I've tried. I still trade options (profitably) but here is the difference between then and now. When I scan an option chain to open a position I never look at the option "price" column any more, I scan down the "Delta" column first. And of course liquidity goes without saying. PS: By "scan" I mean visually, the old fashioned way.
Too many iron condors guys? Plain basic hedge against a big move like long spot plus OTM put as crash protection. I think thatâs why they were invented in the first place: not to speculate a big move, but to protect against one.
Unless you one of the few with special talent, buying cheap OTM options is a losing game. Newbies are attracted to it because of the potential for a quick hit. Unfortunately, that hit is usually on them. They're more suited as throwaway money when hedging something that has the potential to make more in the center - moderate movement away from strike(s) sold.
Well you are not simply buying OTM options you are selling OTM spreads, big difference and not the same strat . Trying to be wry but it just confuses those who do not understand what you mean...