The reason why I asked the earlier question is that I am thinking to buy a longer maturity option and not to be worried that it will lapse worthlessly (if it is ITM). Just a little introduction, i have been trading FX and one of the things i do in FX is buying/selling on pullback. So, I have been hoping to replicate it in Option. Correct me if I am wrong, based on my brief experience in Option, pullback can only be done by buying a ITM call/put option with a longer maturity (in order for the underlying price to move in your direction). May i know if there is any other way to do a pullback with Option? Thank you.
By Pullback you mean a short term Reversal in Trend? Perhaps I am less Risk Adverse than you, but my preference is to risk OTM options. If the "pullback" is truly short term then my OTM option has more profit potential.
The more that I read this thread, the thought occurs to me that you should grab a book by McMillan or Natenberg to bone up on Options. Probably McMillan would be best for you. Guy Cohen is another.
I was referring to a pullback in a trend following situation I have been comparing the option prices btw ITM and OTM....and yea you are right in the sense that OTM option has so much more profit potential as its price is very low compared to a ITM option thanks for the book recommendation, will definitely check Cohen's out too!
Cohen has a couple of pdf files available. If you do a search using his name and Options you should find two or three that you can download.
I had a minute, so here are two that jumped out. I haven't read them myself, but when I scanned them a few years ago they seemed okay. http://ptgmedia.pearsoncmg.com/images/9780133964028/samplepages/9780133964028.pdf http://ptgmedia.pearsoncmg.com/images/9780133087895/samplepages/0133087891.pdf