Buying Naked Calls

Only took 4 pages before we get down to actually working the issue, getting some spitballing going :D


Real Money said:
He said he is bullish. He said he expects upside 5-10% in the next 100 days. Seems like should just long the stock or synth long stock than buy deep ITM call.. no?
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Better bang for the buck if I am right... Less capital up front ..

If I'm buying ITM strikes, what does 6 months or 2 years for that matter help with? Outside the the fact that 2 years, I assume, I hopefully have a better chance to hit my price or a higher price?
 
Bushwacked9 said:
Only took 4 pages before we get down to actually working the issue, getting some spitballing going :D




Better bang for the buck if I am right... Less capital up front ..

If I'm buying ITM strikes, what does 6 months or 2 years for that matter help with? Outside the the fact that 2 years, I assume, I hopefully have a better chance to hit my price or a higher price?
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There's a bit of math to it. But look at it this way. You're probably going to lose theta value, by being in an option, for that long. It's just part of buying options, and there really is no way around it.

If you buy MORE theta by going further out in time? Then you still have some "Greek Cushion" if you get out of the position in 30 to 35 days. But it's more than theta. ALL of the Greeks can act in a little more 'stable' manner, the further into the future you go. Not that they are "stable" in that they don't move around. They do. A lot. But in relation to each other? If you're playing it directionally? More theta means that it's going to assist your directional bet a bit more.

This illustrates what I mean. It's on piece of research on the Delta's? But it can also apply in general principle to other Greeks. Even theta.

https://s3.amazonaws.com/tastytrade...managementimprovement_190925-7.png?1569423031

It stays within a more stable range ... the further back in time you go. And the theta portion of the equation is allowing for this. Theta's bleed out? Is a little more stable (though still a constant bleed off) ... the further back you go in time.

By going 6 to 8 months out in the future? You're still getting nailed on the theta? But there's still some theta and greek "cushion" if you take your profit in a third of that time.

Actually, if you're wanting to wait 100 days? I'd go even further out in time than 6 to 8 months.
 
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taowave said:
Before you get involved in the more advanced nuances of options,you need to answer a couple of questions or should I say have the answers:)

Is 5-10 percent your target and you are out?

If its up 5 -10% are you going to trade with a trailing stop?

Are you punting,i.e. you place the trade and walk away,or will you stop yourself out ?

If you are trading with a stop,will it be based on the stock price or option price?

You are getting a bit ahead of yourself with the other stuff,and its really not complicated..
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We've not even touched stickiness. These are concepts that everyone trading options should know.
 
@raVar wrote:

There's a bit of math to it. But look at it this way. You're probably going to lose theta value, by being in an option, for that long. It's just part of buying options, and there really is no way around it.

If you buy MORE theta by going further out in time? Then you still have some "Greek Cushion" if you get out of the position in 30 to 35 days. But it's more than theta. ALL of the Greeks can act in a little more 'stable' manner, the further into the future you go. Not that they are "stable" in that they don't move around. They do. A lot. But in relation to each other? If you're playing it directionally? More theta means that it's going to assist your directional bet a bit more.




What maths? Do tell.

You're buying less theta by going out in time. Less gamma too. Imagine a universe where you weren't completely FOS.
 
taowave said:
Before you get involved in the more advanced nuances of options,you need to answer a couple of questions or should I say have the answers:)
More...

Is 5-10 percent your target and you are out?
---- yes 5-10 after covering my entering costs

If its up 5 -10% are you going to trade with a trailing stop?
--- no, my platform does not have an auto trailing stop function, unless I am missing it ... TOS ..

Are you punting,i.e. you place the trade and walk away,or will you stop yourself out ?
----- I will stop myself out, if needed. Although I do prefer to not make such a risky bet that I need to watch super close daily. Now if crazy news comes out, depending on the stock or market in general, I will pay more attention

If you are trading with a stop,will it be based on the stock price or option price?
--- based on overall % I am willing to lose and no more.

You are getting a bit ahead of yourself with the other stuff,and its really not complicated..
---- what is really not complicated? Sorry, just not sure what you are referring to on that one
 
He's questioning 6 month calls vs 2 year...he needs to get the basics down...

Profit target 5-10 percent,which I am assuming is on the underlying.
He hasn't said what percent of the move he hopes to capture..

He's going to stop himself out based on a predetermined loss on the option..

There are a couple of holes in his gameplan






destriero said:
We've not even touched stickiness. These are concepts that everyone trading options should know.
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taowave said:
He's questioning 6 month calls vs 2 year...he needs to get the basics down...
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Profit target 5-10 percent,which I am assuming is on the underlying.
He hasn't said what percent of the move he hopes to capture..
------- what do you mean what % of move in hoping to capture? 5-10% of overall move depending on how it's going.. NKE for instance.. I'd be looking to take about $5 or $95ish range which is a tad above 5% but I feel it will get back well above that in the next couple months.

He's going to stop himself out based on a predetermined loss on the option..
Why is this a bad thing? If my stop loss is adjusted well enough it can handle the standard ebbs and flow ... No?

There are a couple of holes in his gameplan
--- like? What can be better?
 
Baozi said:
@Bushwacked9

have you considered ATM-OTM verticals? If you have a very clear profit target and you don't expect massive rallies then this could be a safer play.. you cap your upside but you further reduce the downside.
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That's exactly the way I prefer to approach directional plays (depending on where volatility is at)
 
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