Best options strategy to avoid time decay?

yalag · Mar 20, 2012

What is the best options strategy to avoid time decay? I'm looking at things like a 1-2 years call options. Thanks!

magicz · Mar 20, 2012

use a calendar spread

ForexForex · Mar 20, 2012

Quote from yalag:
What is the best options strategy to avoid time decay? I'm looking at things like a 1-2 years call options. Thanks!

Buy deep ITM calls. Example:

AAPL Jan 2014 240.00 calls
http://finance.yahoo.com/q?s=AAPL140118C00240000

FreakofNature · Mar 20, 2012

Quote from ForexForex:

Buy deep ITM calls. Example:

AAPL Jan 2014 240.00 calls
http://finance.yahoo.com/q?s=AAPL140118C00240000

and pay crazy premium ?

why not buy shares instead

ForexForex · Mar 20, 2012

Quote from FreakofNature:
and pay crazy premium ?

You mean the bid/ask spread? I don't think it's "crazy", but we will have to wait till the market opens - Yahoo finance clears all that data around midnight EST.

Quote from FreakofNature:
why not buy shares instead

The 240 calls will move dollar for dollar to AAPL.

FreakofNature · Mar 20, 2012

Quote from ForexForex:

You mean the bid/ask spread? I don't think it's "crazy", but we will have to wait till the market opens - Yahoo finance clears all that data around midnight EST.

Right.

turkeyneck · Mar 20, 2012

Quote from FreakofNature:

and pay crazy premium ?

why not buy shares instead

With a DITM call like this, it has a delta close to 1 so it should move like the stock but costs less, i.e. ~$36,000 for 1 call vs ~$60,000 for 100 shares of AAPL.

FreakofNature · Mar 20, 2012

Quote from turkeyneck:

With a DITM call like this, it has a delta close to 1 so it should move like the stock but costs less, i.e. ~$36,000 for 1 call vs ~$60,000 for 100 shares of AAPL.

Yes but was referring to the cost of the spread.

moarla · Mar 20, 2012

what about warrants? there are some without time decay.

rew · Mar 20, 2012

Quote from moarla:

what about warrants? there are some without time decay.

Since a warrant is basically a call option I don't see how it can avoid time decay. If I have a FOO warrant at a strike of $10, and FOO is currently at $5, the market will clearly pay more for the warrant if it expires in 3 years than if it expires in 2 months.