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Yeah, that part I already thought about. One would have to dabble in "well-behaved" stocks. Biotech, for example, would be a bad choice, I think. Thanks for your answer.

That's fine. But you didn't explain why. Could you explain the mechanics of why that should be the case? Doesn't it depend on how much time decay has taken place between the time one sells the call and the strike is hit? Granted, if the stock jumps up the next minute you sell the call, no amount...

But its extrinsic value is zero. And any intrinsic value would be covered by the stock bought right at the strike price or slightly below (right before it hits the strike price). I am a newbie, but I think I am right about this.

But I am trying to go to expiration, rain or shine, so whatever happens to the option in the meantime, it will be zero at the end. What I wanted to get some intuition on was the amount of risk one is undertaking, if one is prepared to fulfill the promise in the contract. It doesn't seem to be...

You are probably an experienced options trader, and I am sure it works for you, and hopefully for me some day soon. But my concern was more pedestrian, namely, as a newbie, am I missing anything other than the downside risk in the shares I buy at the strike price for the purpose of delivering...

You are right. I probably should have put it in the options forum. Too late for that. But, from the two quick replies (thanks!) I take it the market risk at the time of "buying to deliver" is the only risk involved. Thanks for the replies, Kedwards and Martinghoul.

Well, if I am buying purely to hedge, I would have to look at the delta, which would have to be around 0.50, meaning 50 shares for each option. But the spirit of the question was more along the lines of "I will just buy the darn shares at the promised price and get ready to deliver them", which...

Consider the following example. If I sell out-of-money Google calls (say May 590 for $4.40), and GOOG advances near 590 (it is currently at around 550), what do I have to lose if I place a limit buy of the stock at 590? I understand that the moment I buy the shares I would be exposed to the...

Is it usually the case that the premiums (presumably corresponding to the midpoint of bid and ask?) are dwarfed by the bid-ask spread? Come to think of it, I assume at such levels negative premiums (making the option less valuable than its intrinsic value) are encountered? Are premiums that...

That's a reasonable but incorrect guess. However, I currently have no intention of playing FX options. My goal was to understand the thinking and the facts when a certain assessment (which happened to be on FX options) was made. But the specific info about FX options were certainly useful...

So, doesn't this agree with the possibility #2, which said "2. Neither is good. All you do on average is pay the broker and the market maker for their services."? As opposed to being sold as spreads? Now I am confused a bit. Are you saying FX spreads are not feasible because they have wide...

You can still sell premium with spreads, can't you? If it's a credit spread, you just sold some net premium, right? So, if selling premium is "bad", it must follow that 1. Buying premium is good or 2. Neither is good. All you do on average is pay the broker and the market maker for their...

If options are priced fairly, then it shouldn't make any difference in the absence of an extra, not-priced-in information, right? Fast premium decay (percentage-wise) is cancelled by the low absolute values of premiums compared with the risk taken. So, over time (i.e. many expiration weeks) or...

Hmm. So in a perfectly fair and efficient market, the only money an insurer can make is the labor he puts into servicing your insurance needs. And those big insurance firms, which are obviously making more money than that on average (or are they?), are based on some sort of barrier to entry or...

Hi MathAndLogic, Could you briefly explain what advantage a binary option presents over vertical spreads? Is it simplicity? Can they be synthesized from ordinary options?

Oh no, that wasn't what I implied at all. What I wanted to know is a way to interpret the comments or experiences of other traders. I expressed no particular interest in FX, or suggested that I found a way to be cleverer than the banks. Just the opposite. Since my intuition is that free lunches...

If I understand you correctly, you agree that Insurinator's complaint isn't about FX vertical spreads being terrible deals per se. It's just that they are so fairly priced that one cannot profit from them. In other words, there aren't such horrible strategies that by simply reversing them they...

Let me elaborate why I posted on this thread after all. When Insurinator wrote "My experience with forex options is that they offer you a poor premium for a strike in the range of 125 - 175 points away from the current value. Anything beyond 175 points away and you will make no money at all.", I...

Thanks for taking the time. I appreciate it. By "taking the other side" , I mean doing the opposite of the credit spread. For example, instead of placing a bear call spread, placing a bull call spread. I think that involves switching what's sold and what's bought, right? Or whatever the "proper"...

Thanks for the explanation. I wasn't concerned about the definition of bear call spread though. I was just wondering if it is necessarily true that, if a strategy is terrible over the long run, then does it follow that taking the other side of such a strategy is a good idea? It seems to me, as a...