Simple question by options novice

trhe difference in deltas is really not significant if you are taking a long-term position. talking about less than a nickle per dollar move in the stock. better off setting up the position now for 6 - 9 months out and just let it run as expected. No need to get .99 delta 9 months out. .94 delta still lets you get into the stock for about 1.3 the cost/risk and a good profit if the stock moves higher.

Quote from FullyArticulate:

My point was this:

You can get a delta of .99 buying a SLAB Apr 25 call for $580.

To get the same delta, you'd have to buy a Oct 17.5 call for $1390.

For 2.5x the cash outlay, you get the same delta. It might be worthwhile buying a nearer month and rolling. Youd' have less capital tied up, you'd get the same amount of profit if you're right, and if something "really bad" happens, you'd lose less money.

You have to pay commissions, and the bid/ask spread, but it's at least worth looking into.
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I was kidding about the Dykstra comment... lol

Quote from FullyArticulate:

I said nothing of the sort. I even cited a web site that thinks his method is crap.

Dykstra has rambled at length about why he is buying deep ITM calls rather than stock. Whether you agree with his picks or not, his reasoning for trading options versus buying stock is parallel to yours. Perhaps the OP might benefit from reading such material.
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Optioncoach has it right, but he did not mention that you SHOULD be rolling covered calls on a monthly basis at one standard deviation out on the strikes for 30 cents or so. It creates what I call a long-dated diagonal position. After six months, you have lowered your cost basis and halved the theta risk.

Another idea, if you were to do a long-dated diagonal on something like IWM, you can write calls for a long time, and if you are good you can get beta exposure for free.


Quote from optioncoach:

trhe difference in deltas is really not significant if you are taking a long-term position. talking about less than a nickle per dollar move in the stock. better off setting up the position now for 6 - 9 months out and just let it run as expected. No need to get .99 delta 9 months out. .94 delta still lets you get into the stock for about 1.3 the cost/risk and a good profit if the stock moves higher.
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Quote from Div_Arb:

Optioncoach has it right, but he did not mention that you SHOULD be rolling covered calls on a monthly basis at one standard deviation out on the strikes for 30 cents or so.
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Stupid math question...

I know what standard deviation is but what's one standard deviation out on strike when it comes to options? Is it the same as one strike up from ATM?

Thanks!
 
What's delta got to do with it ? The delta of an ATM option is always 0.50, regardless of how far away expiry is. It's Gamma (rate of delta change) that's all important. Gamma is also opposite (but not equal to) Theta, so you have to trade one for the other when choosing how far out in time you go......which will be a function of how you expect the underlying to move.
 
Quote from a529612:

I know what standard deviation is but what's one standard deviation out on strike when it comes to options? Is it the same as one strike up from ATM ?
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Sure I could answer if I understood the question. Try again ?
 
Quote from a529612:

Stupid math question...

I know what standard deviation is but what's one standard deviation out on strike when it comes to options? Is it the same as one strike up from ATM?

Thanks!
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You would sell the strike that is 1SD out from the underlying. If the underlying is at 100 and 1 SD is 5 then you would sell the 105 strike for example.
 
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