Bought 12 contracts for 6 cents. Picking up some lotto tickets. someone needed to close a position so I figured why not help make a market and play some tax deductible tickets. These contracts have little theta in them, Gamma heavy/low probability trade. 18 days to go. And my trade on the tape. 12 contracts. Fun little trade, very little risk since the loss is so small worst case but the gains can be nice if I get lucky.
Successful trading is all about "risking a relatively small amount to capture a potentially larger profit". Don't know about this play in particular, but it's in the theme of trader desired success.
There are currently some puts with a 2016, $15/bbl strike price on oil (no doubt bought cheaply). Kudos if they're correct in their play... don't know what it means for the rest of us.
I'm 100% in favor of these sort of option trades. Long OTM options provides the most bang-for-your-buck and has the best R:R of all option positions.
Please forgive my lack of options knowledge as I ask this. Does this mean you spent $6 per contract x 12 contracts (risking $72) and if the SPY is below $215 in 18 days they will be worthless but if the market rallies heavy you stand to make multiple your risk? Also assume if market rallies heavy but falls short of $215 the position may or may not increase/decrease in value between now and then?
With commission its 90 dollars. Correct, total risk is 90 dollars but the potential of a large upside potential if it crosses the break even price and goes deep in the money. Statistically this is a black swan trade, but once in a while you get a black swan. I am okay with the defined loss of 90 dollars. I do not enter into many of these trades but I have had made money once in a while. not huge money but I would close a trade that cost me 90 dollars for a net profit after costs of 80-120 dollars because of some unexpected situation and people wanted out of the position even though they were OTM. So even if this position is OTM it can double in price or triple in price if there is a quick jump in the position and someone wants to avoid gamma risk as the option gets closer to expiration and they are willing to buy them back to lock in a profit for 15-25 cents or more. The best situation would be if it goes DITM and you can buy to close for 1 or 2 bucks a contract. But that has yet happen to me. Plus it adds a little fun to trading since my typical trading is mechanical and pretty boring.
Isn't that the truth? If I had the wherewithal I would just hire a sidekick to make my trades and never even look at the market in the interim...The best trades are the ones that we can't f' up by tick managing them. Or better yet, have a look at how buying those "lotto ticket" pure gamma plays on the Monday of OpEx week would have done in 2015...I'd say there were at least a half dozen instances where buying those .10 deep OTM calls would have been at least a 5x-10x winner...Again, how many traders could have held on if they were in front of the screens the whole time.