Archer,
I use options because I am greedy <wink> and I don't want to expose a lot of capital to this methodology yet. Paper trading was one thing, this is the next level, and perhaps, down the road, I'll start exposing more capital as I really get comfortable with this strategy. As I've noted before, options provide a floor to downside risk (option can't go below zero) which I like. Had I owned EK common when it plummted, the pain would have been very severe. Same with DBD.
I am still working on strike/expiration strategies as I go. Out of money has not really worked over the long haul. Deeper in the money nets you a delta closer to 1, which is the goal, and that's where I've done the best. Expiration at least 6 weeks out is best; for example, I'm buying April expirations from now until March expiration. . . then I'll buy May and beyond.
For my downside protection I am giving up: liquidity (sometimes there is very little OI on these options); higher spreads (3/8 is typical on thinly traded vehicles); and higher commissions ($100 round trip vs. $60 on Schwab).
For FON, the breakout that just occurred took place on less volume then the declines from the two tops (late Dec, late Jan) and that makes me suspicious. But my approach is try and rule charts out, so I always have a negative opinion on these things.
For ZION, similar sort of story: there was more volume on the failed attempt at resistance (beginning of Feb) than the actual breakout. More suspicions on my part again killed any trade.
I use similar strategies on volume, but I eyeball the volume and go on gut feel. . .
F. |
