Ok, it is Friday 8th Feb. 13:40. AAPL is falling nearly to 122. Its time to catch this knife. In fact I did it but just with 100 shares, because altgouhg I believed that during same day will be chance sell it as minimum for breakeven, but if I bought more for example 500 shares and it will stop just at 120 my balls are not enough big handle it, I know myself - and I will sale it at that moment for big loss and than see how it moves to big profit without me. My question. If I want risk exactly at same time $1000 purchasing long call with intention keep it until underlying will "kiss" 128 which strike I should use? (I am ready lose half of or even more). At that time 128 was possible at same day if exceptionally lucky, but more probably just in 2-3 days. I know, I know, not to daytrade options, but if underlying is moving $6 I hope we can make small exception. My question - which strike I should use, which has best bang for a buck? And which month? I assume front month although the expiration is close? And for example if expiration will be in just 2-3 days still use the front month? I know, that deep ITM options are moving with underlying, but for 1000 bucks I will not purchase lot of them - not speaking about bigger spreads. Thanks for any suggestion. Where I can find some literature or web advice about this problem, eventually how to calculate it? What was the best way to go at that moment, when I was ready risk for example 800 bucks but not more? And do not suggest to me tight stop with 20:1 prop leverage, I can not use it.
Hello, Thanks for your care but it is no difference for validity of my question. Btw, If I am paper trading I am extremely succeful, in real trading it is not so - and my only problem is that I am too afraid loose money (but during year I did not lost money in trading although if I subtract my costs for software, feed, screens etc I am in red numbers, thats true). From this reason I look in options they can help me ovecome problem of fear. . If I will be paper or real trading I still need advice if is possible choose strike with best bang for buck. I am too busy solve the problem with my own research so may be somebody can save my valuable time with some suggestion.
To determine the most bang for the buck, calculate what each option will be worth on the day and price your expect it to hit $128. Take that value and then calculate the pct move for each option. The one with the highest pct gain is the one. FWIW, IMHO, a much better use of that $500 that you are willing to risk would be to buy a few good option texts and learn more about options.
Thanks for reply. Yes, this will be the correct way. However simple I do not have time to go the correct way now. Can not you guess what will be the best "vehicle"? deep ITM, ITM, ATM, slightly OTM, few strikes OTM? Or it is difficult to guess and it fact it needs to be calculated exactly and by different underlying the result can be significantly different? To simplify experiment for example that I expected that the 128 will be hit at the end of same day. Btw, if is necessary take decision in 60 seconds you do not have time for complicate calculation. Or there exist some simple advice, or not.
ITM can make the greatest $, but have low ROI OTM will make the greatest % gain. An OTM spread, would help spread your risk. Good Trading
If you are bullish, you can try a vertical spread. There are many strikes and months,and therefore many verticals. A quick rule without going in details is: if vol is high you can go for an ATM spread. If vol is low, go for an OTM spread. Everything else, go for ITM spread (in case of bull call spread, both strikes below the current stock price). Note that call spreads can be implemented with put spreads (equivalent almost in general). Go for the ones with low bid/ask spreads. And you have to chose the time as well. Shorter times allow spreads to be more sensitive to price change. ITM call spreads have higher prob of success, but the % return is lower. Reverse the above arguments (when needed) if you are bearish. Good luck to you.
This sounds like a short-term, market-timed position, which makes a spread a bad idea. Spreads make gamma your delta, giving you much less response to small moves in share price. On top of that, spreads double the slippage, making your small profit even smaller. A spread would be better if the intent was to hold to expiration. I would do a rough calculation like Spin suggested, bearing in mind that small differences in expected yield won't make or break the position, and I would tend toward ATM options to make gamma your friend. Remember, no matter how well you plan, you still might end up being wrong.
for your pick of the stock at around 122 it would have been the Feb. 120 call. The slightest ITM. 2 calls would get you a total risk of about 1000 $ at that time. Nothing wrong with daytrading options especially when liquid like AAPL. You manage the option like you would manage the stock.