the dec are cheaper, what's your logic behind go further out? I'm just doing this for trade not to exercise.
I've been doing options for about 3 years. I've read that the most common mistake people make when getting into options is to buy short term, out-of-the-money (OTM) calls because they look cheap. I used to do it too, but as I got more experience (and lost some $$$) I gradually moved to calls that were longer term, and "in the money" (ITM). I still buy short term OTM calls on occasion, but with small amounts that I'm willing to lose.
Even if I'm betting for only a few days, I buy the ITM calls that are far out in time. One strategy is never "better" than another. It's always a matter of trade-offs between risk and reward. A short term, OTM call will give you more of a gain if you are right and the stock goes up, but it has "time value" that deteriorates quickly, the closer to expiration you are the more quickly it deteriorates. In other words, even if the stock price stays exactly the same, the value of your call goes down. A longer term, ITM call deteriorates as well, but much more slowly.
A longer term ITM call gives you less of a gain as the stock price goes up, but if you are wrong (short term) about the stock going up, you can afford to wait it out. Also, because it is far out and ITM, the time value deteriorates much less quickly.
IMHO to trade options it's important to understand the tradeoffs when picking one expiration month over another, and one strike price over another.
If you haven't already, I'd highly recommend reading a good book on the subject. Lawrence G. McMillian's "Options as a Strategic Investment" is regarded as the "bible" on options. It's almost 900 pages, but all you have to do is read the first couple chapters, then pick and choose depending on what you want to do, eg, long calls, short puts, spreads, LEAPS, etc. I've got 7 options books, and I've found it to be by far the best.
Just my 2¢. |
