Discussion in 'Options' started by gaultiermale, Jul 15, 2006.
I like to go long on a particular stock. Which call to buy? ITM or OTM?How many days to expire?
I would pick August calls ATM or 1 strike OTM. September calls might be a tad too expensive.
thats like asking which car to buy without telling us whether you are single and like speed or have a big family and prefer safety.
some calls are more sensitive to time, others to the directional move, and then others to volty, so make your pick.
taking solely long positions on calls and puts is not exactly the least riskiest approach to options trading and many on this board would call it outright gambling (and not on the casino side)
BUT, if you do it, I would suggest 1 strike OTM, 60-90 days from expiration. If you are extremely sure about your pick though, 30 days or less will give you the best return on your investment...but 60-90 days gives you some cushion against time decay....and if you get 60-90 and it doesnt work for you by the time 30 days is left, call it quits and take the loss.
I think different option strategies are like different knifes for cooking. You need to use the different strategy for different assumption.
When I use options for directional trades I will look at my projected stock moves to decide the strike & month (always need to add 1 month more).
Although some service like to use ITM calls/put, I like to use 1 strike out. HIgher price stocks require to buy spreads instead. With a little move the service can claim victory. I like double, triple & more with less money involved. (e.g. bought SBUX aug 32.5 put @ 0.45 on 7/10 & sold 7/14 more than double)
Some service buy over 3 months long option, but the long term options do not react fast enough for the stock movement.
For other more advanced institutional style option trading stategies, I have been learning from Thinkorswim & really like them too. Now I have all the knifes, ready to cook up a storm
Every decision is all depends on your style. Options take a long time to learn & sink in. One fast way to get answer next time is to ask TOS. As a client I can call to place an order with the same rate & ask my strategy questions. They know options inside out, & better than any of use ET members.
Here is the vanilla version answer:
Use a pricing model to find the bull call spread (rather than a straight call, to avoid volatility issues). Guess by what time your forecast price target is reached and then buy the bcs that is one month past your date (to minimise time decay in case you were wrong) and doubles the fastest (the software will do the search for you and throw up a list of possible candidates - it's then just a simple matter of picking the one with the shortest time to double. If there isn't one that will double then move on to a better roi trade).
if the company is not a defense contractor or in someway involved in energy production, none ...
... for the near-term anyways ...
How do you guess the time to reach your target???
Well, I'm not the one making the trade so I can only guess at how others arrive at their time frame. The original poster wants to place an option trade and for that he must obviously have a price target and time target in mind - how he arrives at these I don't know (I have my own system but am not privy to others'). He may have an earnings date in mind or an announcement date of some sort or use t.a. or read tea leaves, or whatever.
For example, when you open a trade you have to select an expiry. Well, how do you pick your expiry? Obviously you have a method of some sort, right? Or do you just pick a 12 month (leap)expiry and hope that that is the best? Or maybe a 2 week expiry? Iow, everyone should have a reason for choosing the expiry. Once you have picked your expiry month then it's just a matter of finding the appropriate spread (use pricing model search) as I mentioned previously - it's pretty staight forward and certainly a lot more scientific than having a guess at which spread to pick or trying numerous combinations (very time consuming) until you find the one that looks the best.
Separate names with a comma.