Hi IG. When you say you are daytrading for competition do you mean paper trading? If so, there is a great difference between paper trading and when you start placing your actual money on the table as I am sure you are aware :)
Paper trading is the way to go however if you are learning.
We can always say after the fact that we "know" what was going to happen if the stock goes our way but the fact is we can predict but we never really "know" until it happens.
It is good that you are questioning the best way to buy or sell the options because often times we can be right about the direction of a stock but still lose money on the option.
This is due to a number of reasons that include volatility. A stock can go up in stock price and down in option price if you buy when the volatility is high meaning the option is expensive and the volatility comes down (say after earnings or a split) making the option cheaper.
Regarding your example on CIEN, if you are taking advantage of very short term plays, With the moves that CIEN makes and with CIEN being at 100 and being sure that it would move to 87, you may want to go atm if you are going with the front month of Feb. rather than otm. Again it depends on how expensive the option is to begin with.
I can't remember which stock now but a few weeks ago I was watching a stock with the put prem. at $13 which was very expensive (and the volatility was very high). the stock went down 10 points and the put (the strike I was looking at)only moved 1.00.
The delta of an option measures how much the option changes in price when the underlying moves one point. Of course if the stock moves far and fast enough as in CIEN you would be atm quickly but this is more of a risk than I tend to take.
Although I have made a lot of money the last week of expiration with otm front month spreads when I thought there would be a big move. It just depends.
So in short, based on the way I would generally do it (which may not be the best way for you)(and everything I say is subject to change contingent upon the situation) if I'm playing the upfront month for a quick play and expect a big move, I will play atm or itm but certainly no more then 5 points out of the money. If I am going maybe 3 months out or more I may play farther otm.
Steven was right in that you should read and study up on options, especially on deltas, volatility, price influences, etc. Then you can decide which is the best for you because "the best" differs for everyone, depending on your trading style, personality, amount of money to risk, etc.
Sorry it took so long to get back at ya.
jj |
