How to find out if the option is undervalued or not?

"He's referring to long calendar spreads. Problem being, a high front month vol usually equates to a high decile across the term-structure. Vegas increase with duration, so there is no free-lunch. Be careful where you get your information."

True there is no free lunch. But sometimes you come across situations before expected news where there is very high IV in the near month options and not as high in the LEAPS. I have sold near month options that even though they went against me, still made me $ and at the same time the LEAPS had increased in value.
 
"The rational small retail investors won't invest in options at all. Am I right? "

I only have one friend who is a successful trader. He makes most of his $ trading options . I think you will find a number of small traders have made a living trading options, especially on the QQQQ's or OEX.
 
Quote from chrismontez:

"He's referring to long calendar spreads. Problem being, a high front month vol usually equates to a high decile across the term-structure. Vegas increase with duration, so there is no free-lunch. Be careful where you get your information."

True there is no free lunch. But sometimes you come across situations before expected news where there is very high IV in the near month options and not as high in the LEAPS. I have sold near month options that even though they went against me, still made me $ and at the same time the LEAPS had increased in value.
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LEAPS typically trade at a discount on the vol-line, of course. The point is that the back month is far more sensitive to vega. A LEAPS calendar is absolutely LOADED with vega.
 
"The rational small retail investors won't invest in options at all. Am I right? "

One thing non option traders don't take into account is the amount of $ one winning trade can bring you. MSO was at $8 with the $10 LEAPS for that year at $50. MSO finished the year at $40. Say you risked $5000 on those LEAPS, that's $40- $10.50= $29.50./ share profit. So your 100 Leaps are now worth $29.50x 100= $2950/LEAP. You can make a lot of irrational trades off that kind of return.
 
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