Lets keep things simple. When selling options your maximum profit is the premium received ........... maximum loss is UNLIMITED.
Well at least with SPY options you do not have to worry about the S&P going to 0 If it does I bet that means we have Zombie invasion. At that point I do not care, I will be too busy shooting at the Zombies trying to escape the city core.
The highest strike calls are the ones that are most likely to go to 0 if the underlying goes up but not enough or fast enough. You will lose your entire investment not just if the underlying collapses, but also if it only goes up a little bit. An ITM call costs the most but will most likely give you a gain if the underlying goes up at all. If you're very good at predicting quick, fast moves then go ahead and take advantage of the high gamma you get with OTM options. But if you just want an option that follows the stock with 2 - 5x leverage stick with ITM options. Me, I'm lucky if I get just get the direction of change right, never might get the speed and size of the change right. So if I do a directional trade I stick with ITM options.
what is he bst way to gain leverage on stock swing trades: stock options, CFDs or SSFs? taking into consideration spread and liquidity?
The question posed by konviction was: "How do you choose the right strike price? I focus more on the delta of the option because I want dollar for dollar movement (im not doing anything fancy here, just buying calls or puts as a replacement for stock shares), but when you have 3 or more options to choose from, and the delta is the same on all, how do you decide which one you want?" My reply was: "You buy the highest stirke because the premium is lower. That ties up less margin and loses less if an unexpected collapse occurs. " Let me add a few words so that there's no misunderstanding what I said: If you have 3 calls which are deep ITM and all three have a delta of 100, you buy the highest strike since its premium will be the lowest of the three and if an unexpected collapse occurs, it will lose less than either of the other two 100 delta strikes. Buying the cheapest 100 delta strike will also tie up less margin.
----------------------------------------------------------------- Quote from spindr0: You buy the highest stirke because the premium is lower. ----------------------------------------------------------------- Check out an option chain. See if you can pull it up. Give it your best shot.