Best Option Strategy to Leverate a move in the Underlying

W

white_zombie

Hi,

I am fairly new to options trading, I had a question on what is the best strategy to leverage a move in the underlying stock/future by buying options:

1. common wisdom says buy the just-in-the-money option or just-out-of-the-money option, suppose the move is large on and it becomes in-the-money, at what point or say how much percentage in-the-money should one rollout to the next just out of the money option ? At what point does the ITM option loose the leverage to the just out of the money option ?

2. Is there a better way to play this to get the maximum leverage ?

3. What money mgmt rules do traders typically use ?

4. Are there any good books or material to read on the traders point of view of buying options, money mgmt rules for options. Most books bore with various strategies without saying how one goes about really using them.


Thanks for responding!

-White
 
Quote from white_zombie:

Hi,

I am fairly new to options trading, I had a question on what is the best strategy to leverage a move in the underlying stock/future by buying options:

1. common wisdom says buy the just-in-the-money option or just-out-of-the-money option, suppose the move is large on and it becomes in-the-money, at what point or say how much percentage in-the-money should one rollout to the next just out of the money option ? At what point does the ITM option loose the leverage to the just out of the money option ?

2. Is there a better way to play this to get the maximum leverage ?

3. What money mgmt rules do traders typically use ?

4. Are there any good books or material to read on the traders point of view of buying options, money mgmt rules for options. Most books bore with various strategies without saying how one goes about really using them.


Thanks for responding!

-White
More...

1. The further OTM the option the greater the leverage and the further ITM the option the lesser the leverage. So as an option moves from OTM to ITM it loses leverage. Buying near ATM gives the greatest Gamma (i.e. acceleration).

2. It doesn't get much simpler than buying an option. Anything else you do just adds various layers of complexity and trade-offs.

3. Be comfortable losing the whole premium.

4. It's up to you to find the best way to use various strategies. There's no single best way.
 
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