It's much better to buy slightly OTM options than ATM ones?

Quote from Martinghoul:

This is a silly statement for a whole variety of reasons...

So what if you can buy more options? If I have a 100 bucks, I can own a lot more pennies than quarters. The value of my 100 bucks doesn't change.

You don't get the right to call Black and Scholes morons until you invent an independent and more robust option pricing theory and receive a Nobel Prize for it. Moreover, they didn't blow up LTCM. Finally, Black Scholes is perfectly capable of pricing OTM options. If you don't know how to utilize and refine the theory properly, that's your own problem.

What you say regarding the normal distribution is complete nonsense. The problem is emphatically NOT that "large movements from the average are extremely likely".

And, finally, slightly OTM options are as much "the thing" as any other options. Generalization of this sort are utterly meaningless.
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LTCMers ARE morons.
Or at least they are useful fools.

The black-scholes pretends that large movements are extremely unlikely.
Much much more unlikely than the real world.
The 1987 crash is so "unlikely" that it would take many billion lifetimes of the universe to expect it happen.

AIG crashed the very same way.
Their models told them that extreme deviations are unlikely, they happened and ... well you know.

I can make a better model, it just needs a much more flatter curve than the bell curve.
I wouldn't publish such a model, I need fools to sell options cheap.

A more OTM may cost only half of a less OTM option in the black scholes model.
However, the more OTM does NOT have half as much probabilities of ending up ITM.
 
Quote from crgarcia:

LTCMers ARE morons.
Or at least they are useful fools.

The black-scholes pretends that large movements are extremely unlikely.
Much much more unlikely than the real world.
The 1987 crash is so "unlikely" that it would take many billion lifetimes of the universe to expect it happen.

AIG crashed the very same way.
Their models told them that extreme deviations are unlikely, they happened and ... well you know.

I can make a better model, it just needs a much more flatter curve than the bell curve.
I wouldn't publish such a model, I need fools to sell options cheap.

A more OTM may cost only half of a less OTM option in the black scholes model.
However, the more OTM does NOT have half as much probabilities of ending up ITM.
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Ooooh-la-la... I think you need a bit more education.

Black-Scholes doesn't pretend anything. In a flat vol, vanilla BS world a very explicit assumption is made about the probability distribution of the underlying price process. The key thing you need to realize is that the limitations of BS are well-known to just about everyone and their mother. That doesn't make the model obsolete, just like modern physics doesn't make Newtonian mechanics obsolete. Both are foundations, without which no further development would have been possible. Modern option-pricing methods are ALL based on the fundamental framework provided by BS. Any model you might invent with your 'much more flatter curve' (do you mean lepto- or platykurtosis?) will be based on Black-Scholes. Moreover, you are completely missing the main problem of BS, which is NOT about the distribution, but rather about the assumption of completeness of mkts.

So I suggest that, until you at the very least understand how option pricing works, you stop bad-mouthing the people whose contribution to finance and economics you can't even begin to comprehend.

As to your last paragraph, anything is possible in YOUR Black-Scholes model. In mine, all my OTM options cost exactly what they should cost and give me exactly the right deltas (I think that's what you're referring to as 'probabilities of ending up ITM').
 
I sold 30 slightly ATM put contracts for ge the march 16 puts for 1.38 a contract.

So it does not seem like the buyer is doing too well today.

Although I did not thing GE was going to jump up this soon. I thought it might hover slightly under 16 and I get the stock at a discount.
 
Quote from Martinghoul:

Ooooh-la-la...

In mine, all my OTM options cost exactly what they should cost and give me exactly the right deltas.
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You are joking, right?
 
Quote from noob_trad3r:

I sold 30 slightly ATM put contracts for ge the march 16 puts for 1.38 a contract.

So it does not seem like the buyer is doing too well today.

Although I did not thing GE was going to jump up this soon. I thought it might hover slightly under 16 and I get the stock at a discount.
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How do you know that the buyer is not doing well today? Maybe the buyer is long stock or short higher strike puts...
 
But a quick point for newbie traders. If you're just trying to follow a stock's movement with some leverage, then you should use very deep in the money options. Get a delta over .90. That means if the stock goes up, your option goes up, and if a stock goes down, your option goes down a proportinate amount. Too many newbies are attracted to the out of the money, and too many watch the stock rally in the right direction but never make any money. Start simple, and deep.
 
Too many of you are looking at options in a vacuum. Looking at the tape, one has no idea who is on the other side of the trade nor why. Cracks me up when I read that there is an usual amount of call volume on such and such a stock. Doesn't really mean a thing--there is always someone else on the other side of the trade--for some reason.
 
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