Buying Naked Calls

[Baozi]

Good questions, I've been wondering the same myself. This is going to be my personal strategy:

1. Look for stocks in a strong up trend.

2. Wait until they pull back and RSI is oversold.

3. Buy an OTM option with at least 60 days to expiry.

NB: this is just my personal opinion, I'm a newbie so most likely don't know what I'm doing. Just thought I'd share the bare bones of my "strategy".

that would work wonders, however, the biggest issue is to define the uptrend in a clear, objective way.

And, as a corollary, if the uptrend is really strong why not going directly with the underlying?

 

[Wheezooo]

That actually works out really well now that I think about it!

??? Doesn't that mean you'll be buying at the money's???

 

[nooby_mcnoob]

??? Doesn't that mean you'll be buying at the money's???

Close to, yes

 

[ironchef]

Wow, great post. I now finally understand how to assess delta and why it's important.

I was thinking of starting out buying slightly OTM options but now see that I'm better off getting an ITM option. What is the minimum delta you'd recommend if one is looking at buying options with at least 60 DTE?

I am new to options so I shouldn't be giving you advice but here is the thing:

Maverick74 who no longer posted drilled this into my head: There is no edge buying or selling options, everything is priced in, to win you need to be more correct than the MM, your counter party and the market.

If you buy ITM options, you want to compare it to buying the underlying on margins. Sometimes buying on margin could be less expensive, depending on margins interest vs extrinsic premium, time decay and timing. If your opinion of the underlying is correct, often it is more profitable to go OTM, even with higher probability of your options expiring worthless.

I started out ITM but over the years actually moved more and more to OTM and even DOTM.

 

[TommyR]

there is edge in buying the 2 delta wingers before a TT

 

[ironchef]

there is edge in buying the 2 delta wingers before a TT

Did you mean 2 sigma?

 

[taowave]

And why would that be true? Sounds like someone is a punter and loves his wings

100 dollar stock,you are suggesting that intrinsic value< 1 (1%)for any option selected for a directional bet?

So basically its ATM and higher (in the case of a call???)

And this is a blanket statement regardless of the level of implied vol???Hmmmm...

Secondly,are you suggesting one 40 delta call is a reasonable substitute for an 80 delta call,or would you buy equal deltas?

If you suscribe to this,is it safe to assume that one favors backspreading over ratio-ing???

Which brings us back to implied vol....

I read somewhere that intrinsic value should be no more than 1% of the underlying (as a rule off thumb).

 

[taowave]

I am not following your ITM and Margin theory...

Are you suggesting I can buy a deep call,short stock and have a riskless arbitrage??

Are you suggesting that if your broker is jacking you on their margin rate,it may be better to buy a deep call with a "lower imbedded" interest rate?

Extrinsic premium = implied vol...Yes,buy options in low vol as opposed to high vol

Once you start with margin interest vs extrinsic premium,you are on a very slippery slope with one foot on a banana peel....

You guys need to simplify and fully understand what you are saying...

You guys realize you are saying you prefer backspreading,i.e buying 4 .15 delta calls over 1 60 delta call...

When you look to buy call/s to trade directionally,what leads you to OTM/DOTM vs the higher deltas..And please,no margin craziness

I am new to options so I shouldn't be giving you advice but here is the thing:

Maverick74 who no longer posted drilled this into my head: There is no edge buying or selling options, everything is priced in, to win you need to be more correct than the MM, your counter party and the market.

If you buy ITM options, you want to compare it to buying the underlying on margins. Sometimes buying on margin could be less expensive, depending on margins interest vs extrinsic premium, time decay and timing. If your opinion of the underlying is correct, often it is more profitable to go OTM, even with higher probability of your options expiring worthless.

I started out ITM but over the years actually moved more and more to OTM and even DOTM.

 

[ironchef]

This:

Are you suggesting that if your broker is jacking you on their margin rate,it may be better to buy a deep call with a "lower imbedded" interest rate?

Yes, I used to buy the underlying on margin, expensive, often suffered from margin calls and forced to liquidate. Then I found out in many cases I was better off bought calls, exchanging expiration for margin call so I didn't have to liquidate at the worst possible moment.

Once you start with margin interest vs extrinsic premium,you are on a very slippery slope with one foot on a banana peel....

Can you kindly explain this? Us retails pay expensive margin interest rates.

You guys realize you are saying you prefer backspreading,i.e buying 4 .15 delta calls over 1 60 delta call...

Didn't know this is call back-spreading?

When you look to buy call/s to trade directionally,what leads you to OTM/DOTM vs the higher deltas..And please,no margin craziness

Why I do this? By trial and error I found it more profitable.

Thank you.

 

[T-Mex]

lol simple is best. The OP wants to be spoon-fed by @raVar but the OP doesn’t realize that it’s strychnine.

+1
Appreciate your input here on frauds, sadly most people just can't see the obvious...