Something not discussed yet is time decay. Time decay
means the value of your options are going to decay faster the
closer you are to expiration. This is important to understand when
holding options for longer periods.
I use options in place of buying stock for swing trades.
Here's my recipe.
Buy LEAPs. These options have an expiration of 1-2 years
away. This gives them alot of time value that won't degrade
much over the course of a swing trade.
Buy roughly 2 strike prices in-the-money. You're looking
to get a Delta as close to 0.70 as you can find. This means
for every $1 the stock moves your option will move $0.70.
Again this is adding to the intrinsic value of the option.
Posted by fixdgear on 21st of Jan 2011 at 09:41 am
was mentioned....what you need to decide is how much premium you
want to pay for time . with LNG for example i thought 7-8
months was good enough...also not all stocks have leaps...if i were
to buy a leap now?...id go 2 years out and buy F ....this stock is
worth the time premium as it is a constant steady eddy mover low
volatility of this stock will reduce the price of the option.
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Time Decay
options - thanks
Posted by ascr on 21st of Jan 2011 at 09:39 am
Something not discussed yet is time decay. Time decay means the value of your options are going to decay faster the closer you are to expiration. This is important to understand when holding options for longer periods.
I use options in place of buying stock for swing trades. Here's my recipe.
Buy LEAPs. These options have an expiration of 1-2 years away. This gives them alot of time value that won't degrade much over the course of a swing trade.
Buy roughly 2 strike prices in-the-money. You're looking to get a Delta as close to 0.70 as you can find. This means for every $1 the stock moves your option will move $0.70. Again this is adding to the intrinsic value of the option.
time decay
Posted by fixdgear on 21st of Jan 2011 at 09:41 am
was mentioned....what you need to decide is how much premium you want to pay for time . with LNG for example i thought 7-8 months was good enough...also not all stocks have leaps...if i were to buy a leap now?...id go 2 years out and buy F ....this stock is worth the time premium as it is a constant steady eddy mover low volatility of this stock will reduce the price of the option.