I wouldn't hit a bid or take offers in these stocks which is why scanning is important. You would need to find options sitting in the book that the crowd is running away from and take 'm out. You give up a huge amount of edge doing anything else.Quote from ChrisM:
Trajan,
I`ve done a lot of testing regarding this.
It`s all about predicting volatility, however it seems to be easier to predict future volatility than guessing whether sth goes up or down
High volatility
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I agree that it is easier to predict vol which is why I trade options. Small stocks have much bigger spreads on the bid/ask IVs which is what I was refering to above.Quote from ChrisM:
Trajan,
I`ve done a lot of testing regarding this.
It`s all about predicting volatility, however it seems to be easier to predict future volatility than guessing whether sth goes up or down
I agree. Otm calls in general are often the worst way to play moves up.
Very true, which is why so many people on the exchanges are leaving or not making money. There are too many single digit or teen stocks out there. Being more comfortable with small premiums, I don't mind it but there are much more opportnities higher. The thought of making a quarter wide market on a 7 dollar stock sounds great, but is unrealistic unless your a mm. There isn't enough volume on these types to sustain the industry. I made some money trading these but not enough to justify paying for a seat lease. It was more like paying for my tab in the bar at the CBOT(forget what it's called).
I`ve just had similar position closed. The stock actually exploded while volatility was on the roof, so I had to roll over position to the next level, but still could make some profit.
However, it`s great for non-trending markets, while the markets tend to grow recently, so I keep also bull vertical spreads. This gives better results per margin requirements.