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.? ? ?
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Posted in Option Strategies - Good and Bad!