Jay-
Your understanding of calls is correct. Small downside with 5 calls, fairly substantial upside, especially given the fact PAIR is hovering below trendline and 50 MA so if it busts through it will not just go to 20 and hang around. It will likely move to 22-24 range, so your calls will be worth $2-4 per contract.
The chance is pretty good the opportunity will be available tomorrow morning. PAIR has shown signs it is not going to fall, but it has also shown signs that it is not going to take off (easily). As a friend from this thread pointed out, PAIR appears to be forming a symmetrical triangle. . and I agree. It may hang in the high 18's for few days before blasting off.
Options are sensational money-making (and losing) vehicles. In this trending climate they are totally ideal, splendid, and strikingly moral . . and one can often get away with buying near-term options (with Feb or Mar expirations) because the whole tech sector is moving in the same direction. However, in a non-trending market with less predictability, more advanced Options strategies are required for any degree of success. In all likelihood, you will just lose your money.
(this is not a minor point, once you make a bunch of money trading options in a trend you will get overconfident and continue trading them in the same manner once the trend ends and all your money will go bye-bye(that's a technical term). This happened to me.. . which explains why I am currently writing this from the front door of a Food Lion Box. (I'm moving to a bigger one soon, however)
Technical Analysis is absolutely mandatory for any Short-term Options trader. But again, near-term options are generally not advisable because you could be totally right about the direction and degree a stock will move, but be off in the timing and end up losing your money. In other words, time is working against you.
Buying options 3-6 mos out is probably what many people would recommend. This is not even a bad idea for PAIR right now.
The upside of longer term options is the time premium (which makes up a big part of the price) does not disappear quickly until about a month before expiration, so if the stock goes nowhere for a while and your options are still a few months from expiration, your option contract devalues little. The downside of longer-term options is they cost more. . . you have to pay for that time.
The best climate for Options in my view is right NOW. When many stocks have formed nice bottoms, so downside is limited, but are approaching MA and resistance levels which often prompt a breakout (and big gains)when broken thru. However, buying puts in a downtrend can also be lucrative because stocks decline more quickly than they rise.
One of the better use of Options is to sell them. For example, selling Covered Calls on stock you own is a generally smart investing strategy. You sell them to me, the stock doesn't move. They expire worthless, I lose my money, you keep it as the premium I paid you. Time is on YOUR side.
Happy Investing!
-jason |
