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Strategies & Market Trends : From the Trading Desk
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To: steve goldman who wrote (2630)2/27/1998 7:23:00 PM
From: Robert Graham  Read Replies (1) of 4969
 
As usual, well thought out Steve. I agree that aggressive out-of-the-money calls are a sucker's bet. The only value it has in its time premium will be worth nothing at the end of its life span as an out-of-the-money call. Perhaps LEAPS are worth playing this way. I do not know. I find the best call options are strategically purchased at-the-money or just-out-of-the-money calls. Purchase them before others drive up their time premium in their speculative buying enthusiasm helps out. The timing of the purchase right before a good strong move up by the stock is also very helpful to me. Due to the time wasting nature of options, I believe in time stops. I suspect much greater than %70 of out-of-the-money options by two or more strikes expire worthless. Why play with these odds? Why would anyone consider this a necissary risk in order to succeed in trading options? Why make the difficult shore of pursuing profits in the market more difficult than it already can be without making it more difficult through choices like this?

The curious thing about the option's premium is that a stock's demonstrated strength in a well-established uptrend tends not to have this revealed in the option's premium. Evidently the concept of volatility that the option is keyed off of and that of a price change through a trend are not the same thing. This is to the intelligent option players advantage.

Bob Graham
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