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options101

This is my first post, I am primarily interested in options, and have read most of this forum. Fantastic info here helped a lot.

I have taken the online options course at the Chicago Exchange, I have two accounts Etrade and TDAmeritrade. I am also going to open an account at thinkorswim. The main reason for 3 accounts is to compare tools.

I will be doing speculative option trading in tech which is a sector I am very familiar with. I have a good understanding of the greeks and the basics of options. I am now on to selecting the right option for what I believe will happen. I plan to start with simple long calls. I know this is a risky strategy so I plan to manage my accounts so that I can make mistakes and wont get killed.

Here are some of my questions:

What is a good method to evaluate a call whether it’s cheap or expensive, software tools?

What are the risks of going to far OTM, my thought is that the call is cheaper so the loss is minimized if the call becomes worthless, the trick will be finding the right balance.

Should I wait for a move to start before purchasing the option to minimize the effect of T and V on the price.

I am considering doing something like DEC, JAN, and APRIL call as a spread, any thoughts?

Thanks.
 
Quote from options101:

...What is a good method to evaluate a call whether it’s cheap or expensive, software tools?
More...
Looking at the historical implied volatility is one way of doing it. You can also comapre IV with historical volatility. Or do any combination of the two approaches. You can chart IV for the stock as well as the individual option in THinkorswim.

Quote from options101:

...What are the risks of going to far OTM, my thought is that the call is cheaper so the loss is minimized if the call becomes worthless, the trick will be finding the right balance.
More...
The further out you go the higher the probability of the option expiring worthless. Also, far OTM options are very slow to respond due to low delta and gamma.

Quote from options101:

...Should I wait for a move to start before purchasing the option to minimize the effect of T and V on the price.
More...
Timing and volatility are crucial in options (in addition to the price direction and move magnitude) so the more accurate you are the better.

Quote from options101:

...I am considering doing something like DEC, JAN, and APRIL call as a spread, any thoughts?
More...
Not sure what you mean. Are you talking about a calendar spread or just buying calls in Dec, Jan and Apr? Or is it something else?
 
Quote from MTE:


Not sure what you mean. Are you talking about a calendar spread or just buying calls in Dec, Jan and Apr? Or is it something else?
More...

Take AAPL and my opinion is that the stock will see a large move mid JAN, however the stock is down lately and I believe it’s a good time to pick up some JAN and APRIL long calls. I want to stay pretty far OTM so that potential losses are minimized.

JAN is for macworld announcements and APRIL is for earnings, my speculation.

Thanks.
 
Quote from options101:

Take AAPL and my opinion is that the stock will see a large move mid JAN, however the stock is down lately and I believe it’s a good time to pick up some JAN and APRIL long calls. I want to stay pretty far OTM so that potential losses are minimized.

JAN is for macworld announcements and APRIL is for earnings, my speculation.

Thanks.
More...
I see, well, then technically it's not an options spread, but that's just semantics.

Staying far OTM isn't always a good thing as I mentioned above. Instead of loading up on cheap far OTM calls you may wanna consider buying a lesser amount of closer to ATM calls or even ITM depending on your targets and timing.
 
MTE,

Thanks for taking the time to answer.

My "Strategy" on reaching far OTM is simply to minimize losses as I am a beginner and understand this type of speculation is very risky.

My thinking here is that going way OTM I minimize losses and accept smaller gains, I see volume on the extreme OTM calls and I am working to find a tool that will guide me on determining the best OTM call based on the amount of risk I am willing to accept.

Again, Thanks for your time.
 
Quote from options101:

MTE,

Thanks for taking the time to answer.

My "Strategy" on reaching far OTM is simply to minimize losses as I am a beginner and understand this type of speculation is very risky.

My thinking here is that going way OTM I minimize losses and accept smaller gains, I see volume on the extreme OTM calls and I am working to find a tool that will guide me on determining the best OTM call based on the amount of risk I am willing to accept.

Again, Thanks for your time.
More...

Unless you are trading 1 contract you can usually trade less contracts closer to ATM for the same max loss.
 
Quote from options101:

My "Strategy" on reaching far OTM is simply to minimize losses as I am a beginner and understand this type of speculation is very risky.
More...
In the Options Trading forum on this website buying OTM calls is also known as "buying lottery tickets" as OTM calls (and puts) have a high probability of expiring worthless. Sometimes you win (i.e., get lucky) but more times than not you lose (but it is your $$$ to lose).

To learn more about buying OTM calls read this article "Make Better Options Trades":
http://www.investopedia.com/articles/optioninvestor/07/trading_range.asp

Other good beginning options articles:
http://www.investopedia.com/articles/optioninvestor/
http://www.optionvue.com/Education_Resources.aspx
 
Quote from options101:

Take AAPL and my opinion is that the stock will see a large move mid JAN, however the stock is down lately and I believe it’s a good time to pick up some JAN and APRIL long calls. I want to stay pretty far OTM so that potential losses are minimized.

JAN is for macworld announcements and APRIL is for earnings, my speculation.

Thanks.
More...

So you think now is a good time to pick up some AAPL Jan and April calls.

But what if by Dec 20th, AAPL is down to $90-$120.00 range. What will those calls you say to buy now will be worth?

Big fat ZERO?
 
Options101,
I know you did not intend it but you insult those who are truly traders by referring to what you plan to do as trading. It is gambling, nothing more, nothing less. You plan on playing straight, way out of the money, deltas with no hedge, no adjustment plan, and no rationale as to current or future IV.

As long as you can afford to lose all of your investment capital and consider this just tuition then I suppose there may be some point to it.

You have clearly not spent enough time reading these forums or any books. If you are going to try to play straight deltas, in or out of the money, then try trading the underlying first. If you can't trade the stock with consistent profitability then how can you possibly trade the straight delta of the options with success?

I would wish you luck, but based on your two threads, you essentially have no clue what you are doing. You don't need luck, you seem to need to lose your money and then maybe you will take the time to learn something first. Whether you appreciate it or not, these things were said to help you.
 
If you are going to try to play straight deltas, in or out of the money, then try trading the underlying first. If you can't trade the stock with consistent profitability then how can you possibly trade the straight delta of the options with success?
More...
That may be the simplest but best answer I've ever read for trading long options ... maybe other than for the lottery ticket buyer with no clue :)
 
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