Bullish strategy for low IV/OI?

S

s3raphim

What are best bullish strategies to trade illiquid options with wide bid/call spreads? I have a 10k, Tier 2 account, so can't sell naked -- but let's say I am very bullish on a stock, however there is low OI and therefore a wide bid/ask spread. Of course I could buy calls to the extent I could afford and according to my portfolio risk threshold, but when ITM and I go to sell there is the bid/ask slippage. I could do a cashless exercise (same day substitution) through my broker, but again -- bid/ask slippage.

In other words, what strategies are there for very bullish plays w/ only a Tier 2 account and less than 10k with wide bid/ask spreads.

I know most everyone will say: don't trade illiquid options; stay away; etc... but humor me please! Thanks.
 
Or perhaps a better question is: What are the ways you can effectively reduce your cost basis on a sub-10k, Tier 2 account besides selling covered?
 
Personally I wouldn't be in any illiquid low OI trade. The reason is if I decide I want out of the trade later, I want to be able to get out and not get stuck with it. Sure you may can limit your risk with some plays but even then sometimes you may still need to close the trade.
 
If you are really really bullish, buy long OTM calls that are ~.2 to .3 Delta with > ~ 3 months expiration. Buy at mid point of bid ask.
 
Maverickz said:
Personally I wouldn't be in any illiquid low OI trade. The reason is if I decide I want out of the trade later, I want to be able to get out and not get stuck with it. Sure you may can limit your risk with some plays but even then sometimes you may still need to close the trade.
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Agree. However, if S3 is right in his directional bet, his calls should be ITM and he can always get out with price ~ = stock - strike.
 
s3raphim said:
What are best bullish strategies to trade illiquid options with wide bid/call spreads? I have a 10k, Tier 2 account, so can't sell naked -- but let's say I am very bullish on a stock, however there is low OI and therefore a wide bid/ask spread. Of course I could buy calls to the extent I could afford and according to my portfolio risk threshold, but when ITM and I go to sell there is the bid/ask slippage. I could do a cashless exercise (same day substitution) through my broker, but again -- bid/ask slippage.

In other words, what strategies are there for very bullish plays w/ only a Tier 2 account and less than 10k with wide bid/ask spreads.

I know most everyone will say: don't trade illiquid options; stay away; etc... but humor me please! Thanks.
More...



You are approaching options from the Bottom Up, instead of the Top Down.

Options is a Top Down process. Focus on the underlying them build your option position around your views of the underlying - in your case you are very bullish, so buy calls if the price can justify the purchase. Wide bid/ask spreads, low volume is a mute point if the underlying moves in your direction. If your expected bullish move can overcome wide bid/ask spreads then it's best to buy the calls.

With the Bottom Up process you are focusing on the options first, and the underlying is secondary.

:)
 
OptionGuru said:
You are approaching options from the Bottom Up, instead of the Top Down.
...Wide bid/ask spreads, low volume is a mute point if the underlying moves in your direction. If your expected bullish move can overcome wide bid/ask spreads then it's best to buy the calls.
:)
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Very helpful perspective, thank you.
 
if you're [really] very bullish, why not buy some OTM Leaps?

you can still make money, with leaps, before expiration, can't you?

if your bullish prediction is correct, with leaps you also have [more] time...

i confess/admit, i'm "into" Leaps, at the moment

marc
:banghead:
 
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