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Strategies & Market Trends : Options-Upcoming Stock Splits
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To: Tony D. who wrote (399)8/28/1997 12:39:00 AM
From: Robin   of 415
 
<<Is it more profitable to buy an in the money call by $5-$10, or more profitable to buy 5-10 out of the money?>>

Tony, Great question. I think its best to do your own study on it. A lot of the answer depends on stock volatility, time and your risk level. Generally speaking I have found for the same amount of money spent, more money can be made on the short term by buying out of the money options and having the price move up than in the money options. Lets take CYMI as an example and using close but not exact option prices. Say the current stock price is around 92. Sept 85's cost 12 and Sept 100's cost 4. The price of the stock moves up to 100 the next day. Sept 85's will now cost around 17 and Sept 100's will be going for around 7. If you bought 2 contracts of the Sept 85's for $2400 they now would be worth $3400. However six contracts of the Sept 100's which also cost $2400 would be worth $4200. Remember the risk is much greater for the out of the money options. For this reason I usually buy near or at the money calls for short term plays and farther out of the money options for long term plays. CYMI options are expensive. I bought mine last week when the stock was at 82. Hope all this makes lots of cents. RR
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