Thoughts on long OTM SPY calls

Sotnis

Sotnis

Hello,

I'm currently looking at OTM SPY 225 calls for Jan 16. Right now these are going for .03 to .04.

Many S&P500 projections point towards high growth by the start of next year. Let's just arbitrarily say these end up worth $2. That's a 6566.67% gain. This $2 value could come from either surpassing the $225 mark, or volatility in some run up (correct me if I'm wrong)

This seems like a very high reward/relatively low risk route.

Given that much time it seems reasonable to expect growth and maybe some quick rising catalyst at some point. Barring the S&P500 dumping like crazy consistently over the next few months and these expiring at $0, is there anything I'm missing?
 
Sotnis said:
Hello,

I'm currently looking at OTM SPY 225 calls for Jan 16. Right now these are going for .03 to .04.

Many S&P500 projections point towards high growth by the start of next year. Let's just arbitrarily say these end up worth $2. That's a 6566.67% gain. This $2 value could come from either surpassing the $225 mark, or volatility in some run up (correct me if I'm wrong)

This seems like a very high reward/relatively low risk route.

Given that much time it seems reasonable to expect growth and maybe some quick rising catalyst at some point. Barring the S&P500 dumping like crazy consistently over the next few months and these expiring at $0, is there anything I'm missing?
More...

If you are skilled enough to buy OTM options and do well, you don't need to ask for advice.

Food for thought.
 
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It would seem you are not alone with interest in this strike!
 
Autodidact said:
If you are skilled enough to buy OTM options and do well, you don't need to ask for advice.

Food for thought.
More...

i don't think he is skilled :confused: hence, the asking
But I agree, buy closer options...far out into the future is harder/riskier.
 
Sotnis said:
Hello,

I'm currently looking at OTM SPY 225 calls for Jan 16. Right now these are going for .03 to .04.

Many S&P500 projections point towards high growth by the start of next year. Let's just arbitrarily say these end up worth $2. That's a 6566.67% gain. This $2 value could come from either surpassing the $225 mark, or volatility in some run up (correct me if I'm wrong)

This seems like a very high reward/relatively low risk route.

Given that much time it seems reasonable to expect growth and maybe some quick rising catalyst at some point. Barring the S&P500 dumping like crazy consistently over the next few months and these expiring at $0, is there anything I'm missing?
More...



I would go with the 215.00 calls at $0.58, SPY yearly high was $213.78. If SPY hits $225 that would be about 1600% gain.




:)
 
Based purely on volatility the probability of SPY closing above 225 within 91 days is about 6%

Also, if SPY increases that much in 90 days IV will go DOWN not up. After the recent market drops IV is higher than usual, so you'll most likely lose time value during a major price rise.
 
Last edited:
I'd probably buy some at 225 and some at 220 strikes.
Has anyone studied far otm options and their pricing after large vol spikes?

How far otm with what delta is protected on the downside by how large a vol. increase?

It would seem that these are a lower risk bet with protected downside because of the very low deltas and the likelihood that any price loss would be more than compensated for by vol spike price increases.


I wonder what the huge spike in vol. did to the prices of the far otm SPY calls from that period...if they actually gained in price. Can anyone look this up on Livevol?
 

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Vega for the Jan.2016 SPY 225 strike is about .12, the 215 its about .28.

So just about any vol. increase from a downside move would protect these calls.

IV for these 225 calls is about .11 vs about .16 for the ATM 200 calls
 
smile said:
I'd probably buy some at 225 and some at 220 strikes.
Has anyone studied far otm options and their pricing after large vol spikes?

How far otm with what delta is protected on the downside by how large a vol. increase?

It would seem that these are a lower risk bet with protected downside because of the very low deltas and the likelihood that any price loss would be more than compensated for by vol spike price increases.


I wonder what the huge spike in vol. did to the prices of the far otm SPY calls from that period...if they actually gained in price. Can anyone look this up on Livevol?
More...

All I can say is that on Aug 24-28, I had some "dead call spreads" opposite some put spreads that started to really spike in value when VIX was at its peak...IOW, the far otm calls jumped in value as the market was declining...obviously, it makes sense, but it was interesting to witness...and of course they "came in" once things settled down and the market started its pre-FOMC upward correction in late Aug early sept
 
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