I think this is what I have understood till now:
1. If I want to participate in an upside move or I think the underlying stock is down more than it should be, I should be buying in the money calls out a few months. Deep in the money is better because the delta is higher.
2. If I am bullish on a stock and not really thinking it will fly up, but want to participate in the general uptrend, and not afraid to own the stock at the strike minus premium earned, I should be selling near term puts (not sure in or out of the money yet, have to read this more).
Based on the above, with NTAP, a company I like, a stock price which is at ~94 or so right now, if it falls below 90 I would be thinking of buying in the money Sep calls.
Based on my thinking that below 90 is support with 80 being pretty solid support, I started looking at options on NTAP.
Bear with me, this is the first time I'm actually doing this -- I see that the Sep 80 Call bid/ask is at about $29-$32, Sep 60 Call bid/ask is at about $41-$44 (I don't have exact real time numbers right now, Quote.com is hosed). My feeling is that NTAP should get to about 150 by Sep (ok, this is tea leaves area, but you gotta start somewhere). Based on me showing a profit when NTAP gets above ~100 for the Sep 60 Calls vs above ~110 for the Sep 80 Calls, are the Sep 60 Calls more attractive even though they cost more? It seems so. Serious flaws in the analysis? Should I be looking at other strikes/months?
Thanks!
-Atin |
