<<Any comments from options veterans?>>
On one hand market analysts say that about 2/3 of all stock options expire worthless. Stock options tend to be more volitile than the underlying stock, often much more. On the other hand, many investors try their best to beat the odds by buying options in hopes of making a big kill off the tremendous leverage options gives them. Unless there is a "new math" I didn't learn about in school (EE degree), something just doesn't make sense here; how can investors speculating in options hope to consistently make money (more than just a few "trophy" wins) when so few options actually pay out? This sounds a bit like Las Vegas (Lost Wages) to me.
Although I occasionally buy options, I've considered buying them on Quantum recently, I am much more a seller of options. When a stock is beaten down momentarily to the point of being oversold, you sell puts in the heat of the downward panic. If the stock moves up to where it is at high valuations considering historical norms, analysts and your own price targets, etc., you sell calls against your position, or if you are more confident you sell "naked" calls - that is sell calls without owning the underlying stock. I sold the NOV 35 calls against the majority of my position when Quantum reached around 41 1/4. The calls got a slight premium so if I were called away it was like selling the stock for around 42. Now it looks unlikely that it will be back up to 35 by next Friday and I will still own it. If I had wanted to, I could have bought back those calls yesterday or early this morning for between 1/16 and 1/8.
One thing that makes selling options so attractive is that the "time value" of your position works for you rather than against as it does when you are a buyer of the options. If the stock price stays relatively flat, the options tend to become less valuable as you approach the expiration date. If you sell the options with good timing bvased on chart TA and fundamental analysis, you often find that they just expire and don't effect your stock position or they move to a point where you can buy them back at some point to cover your position or exposure.
With 90% (my guess) of investors concentrating on how to make a killing on buying options, it makes sense to study how to work the flip side of the equation - I think it's the winning side. |
