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What Sle said !

GOM = gulf of mexico You don't calculate the premium. The market does. Premuim is the price you pay to buy a put or call. You can buy the actual shares of BP without setting and stop loss. Not trying to be mean here but have you ever traded stocks or options before?

Well different strokes........etc. Personally I believe you are throwing your 1K away in a trade like that. I'm assuming you're talking about buying calls on BP. I would sooner look at some of the beaten down drillers with good balance sheets if you're looking for a long position...

Of course. Not trying to be snarky here but don't try to over-analyze this. It's not that complicated. Think in terms of the position at expiration and evaluate the different outcomes and the probabilities before entering.

Just calculating a simple percentage. If you realize a gain of 3$ on a 1$ investment (OTM) or 5$ on a 2.50 investment (ITM) the percentage gain on the OTM is greater simply because you invested less

Inherent in a limit order are the words "or better". If you place a buy limit at 500.49 and the true offer is 500.25 you SHOULD be filled at the better price. In the 'old' days of placing orders on the phone the wording was "buy 1000 GOOG @ limit 500.49 or better, day only. Run a...

The position described by the OP would require that the trader have a bullish bias on the stock. That being the case, IMO it's a lot simpler and cleaner just to sell the put credit spread. I see no reason to make things more complex with the call spread legs. You will know your risk up...

IMO you need something more basic than Natenburg. Try the CBOE site and their tutorials. I believe you are confused because you're interchanging vocabulary. Don't confuse premium with profit on the position. It can be, but not always.

The percentage gain on the OTM call is greater of course because you have less money in the position initially. BUT, the delta on the ITM is higher so that contract will appreciate (decline) more in absolute terms given the same gain (loss) on the underlying. I would suggest not making...

If I were in your shoes and you are still long term bullish, I would prefer to sell a Put credit spread. Take in premium rather than lay it out. The worst result could be owning the shares at a much lower cost than today's or january '11, while doing so at someone else's expense. You...

Not that it will matter but, on page 244 of ""Options; Essential Concepts and Trading Strategies"", is a section titled Covered Writing versus Put selling: A Difference where there is None. Here's the first sentence. "Starting from a cash investment and going to either a covered...

Maybe. It depends on the magnitude of the move compared to the spread. The spread caps your upside as I'm sure you know.

Man the average volume is so thin on FDS that any move could really be exaggerated. I'd steer clear of that one prior to earnings, but that's just me.

Excellent point !

They went up in smoke as I recall

I agree. Even if you have correctly called the direction of movement after the earnings announcement, the vol is likely to contract because the 'unknown' is now 'known.' I don't like holding into an earnings announcement.

If you own the stock, perhaps you should consider putting on a credit spread rather than the CC. You take in some premium, the stock CAN still cover your short leg, and the long leg can still participate in any upward movement. Conversely, if the underlying declines you still have the...

I have a word of advice for you. Make the trade when it's there rather than scheduling one trade per day. It may take a couple days for things to line up. Good luck Increasenow. You're going to need it. Beware of size. Wilt: I've seen that same thing happen. Back in the "good old...

Good explanation DMO. the carrying cost of the option is the opportunity cost of the funds committed elsewhere.

If John is gay, he is probably long a spread, possibly long a strangle but certainly long a straddle. If the market moves against him he may gag on these positions since he's bitten off more than he can chew.