Directional call

D

DTB2

If one has, in their mind, a very good probability that a stock will be up 10% within a given period and seeks to buy a call, which strike would you prefer?

Several strikes ITM 70 Delta ish
ATM
OTM strike equivalent to where you think the stock will go.

All 3 are profitable in the trades I have looked at.

I have my choice in mind but would like to hear from the more seasoned hands.

Thanks
 
Depends on the expected move. For Tesla a 10% move over a short time period is probably mostly priced in. For something like KO, then it's not. If it's not priced in, go OTM calls and buy more of them. This is risky so you need to basically know something that the rest of the market does not know.
 
ET180 said:
Depends on the expected move. For Tesla a 10% move over a short time period is probably mostly priced in. For something like KO, then it's not. If it's not priced in, go OTM calls and buy more of them. This is risky so you need to basically know something that the rest of the market does not know.
More...

Thanks.

It is more of a KO type stock.
I've looked at a pattern from 1985 forward.
Obviously it's not 100% but has over 85% repeatability
 
DTB2 said:
If one has, in their mind, a very good probability that a stock will be up 10% within a given period and seeks to buy a call, which strike would you prefer?

Several strikes ITM 70 Delta ish
ATM
OTM strike equivalent to where you think the stock will go.

All 3 are profitable in the trades I have looked at.

I have my choice in mind but would like to hear from the more seasoned hands.

Thanks
More...

Roll over until the urge passes. Pay your child support arrears.
 
"Timing is everything."

(Well, maybe not everything, but in Option-land, it is certainly a goodly third of everything. So, whether you're buying a single call or are spreading it off [to lessen the cost], your profit will be a product of the market move *and* the days-to-expiration *and* the existing volatility-priced-in. [call them, delta, theta, and vol] Focusing only on delta could well have you seeing the underlying move up, and your position still losing money because of theta and vol moving against you. :(

Assuming vol does not move o_O, then your position is a function of just delta and timing. Assuming your delta expectation of 10% is correct, then it's down to timing. So, "Timing is everything..." :D)

The "time value" of the option/strike you choose should be your focus -- the more sure you are of timing, the more you might consider paying for time value. The less sure you are, ........
 
Thanks Tom.

Typically the move is within 30 days or so. I've been looking buying 120-125 DTE to mitigate decay.

I'm also leaning to the OTM which has less theta than ATM, so another "safeguard" working on my behalf.

There may be some vol contraction or even expansion, not sure but the trades are around earnings time but not an earnings trade.
 
DTB2 said:
I'm also leaning to the OTM which has less theta than ATM, so another "safeguard" working on my behalf.
More...


"Errrrrrm....!" :confused:
94Rg7.jpg
 
??? There are two main factors which influence theta value: moneyness and the length of time until expiration. The theta value is usually at its highest point when an option is at the money, or very near the money. As the underlying security moves further away from the strike price, meaning the option is going into the money or out of the money, the theta value gets lower.???

https://www.optionstrading.org/improving-skills/greeks/theta/
 
Another angle, then...
1.png


Notice that as value of the option increases, the proportion of extrinsic value to intrinsic value shrinks in comparison, to the point where, deep-ITM, your analysis should include simply buying the underlying. (It then boils down to a leverage/risk question.)
 
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