I like to go in the money about 10 or 15 points, because if it goes against you say 10 points, your option only goes down about 5. So I like the July 85 or 90.
Steve, this is a very important point for options trading, how will your option do if the price goes against you -- particularly in this market. From working through some Black-Scholes examples, however, I am a bit confused by your statement. I'm not sure if you're saying that you like to go ITM, or you like to go out in time to reduce delta.
The more you go ITM, the higher the delta, and you would expect to lose more of $1 for every $1 that the stock turned against you. If you want to reduce that, would you not want to go OTM? For QCOM, for example, which is typical of high volatility G&Ks, using Black-Scholes for one month out I get a delta of around 0.7 for 10 points ITM, so if it goes against you by 10 points your option would drop 7, and this is relatively unaffected by time value (for some strange reason). For one year out, for example, delta goes from 0.68 to 0.74. For 10 points OTM, however, I get a delta of 0.44.
Maybe I am missing something, or am confused. Or maybe SNDK trades differently. |
