My Favorite Option Strategy!
Posted by Pete Stolcers on May 12, 2006
It’s only fitting that I start my first option trading blog off with my favorite strategy. I’ll bet it’s yours too. I like to buy cheap out of the money front month options with a week left until expiration. There is nothing like the thrill of watching them get to the strike. If there’s a day or two left and the stock has momentum you can just feel the premium getting ready to pop. If your lucky, the options are a few points in the money on expiration Friday and you are leveraging thousands of shares for just pennies on the dollar.Don’t get excited, I said my favorite strategy, not my most consistent one. This “take a shot – make a lot” play only works in rare instances. You need to have a sustained market move in one direction, a stock that has very high relative strength, a strike price that is one or two points away, a stock that is over $50 and options that trade for $.50 or less. It is the “perfect storm” and it is an all or none play. It amounts to a scenario where there is an equal chance that the options will more than triple in price or expire worthless. From a risk/reward standpoint, it’s a bet worth taking. These situations don’t come up very often, but when they do, they can produce some huge winners. They comprise about 2% of my option trading.OneOption conducts extensive option trading research and it provides specific options trading entry and exit instructions. Select from a spectrum of options trading strategies and find a service that is just right for you. Hedge funds, professional traders and active investors count on OneOption for solid research.
Posted in, Option Strategies - Good and Bad!