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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (3915)	9/14/1999 10:52:00 AM
From: Digger Sacket	Respond to of 18137

Lee, seems that you like to buy/sell out of the $ OEX calls/puts. Biggest downside to options is the Bid - Ask spread, and so why not prefer deep in the $ options. Let's compare - you buy 10 Oct 720 calls - 13.125 - 13.875. Costs you $13875 Spread = 0.75 Delta = 0.21 If OEX rises, you give away the first 3.57 points just to pay for the spread. Cost to you just for the spread = 0.75 * 10 calls = $750 If you buy 1 Oct 580 Call - 134 - 136 Costs you $13600 Spread = 2 Delta = 0.96 If OEX rises, you give away the first 2.08 points just to pay for the spread. Cost to you just for the spread = 2 * 1call = $200 If OEX rises 5 points, with your out of the $ calls, you're ahead 5 - 3.75 = 1.25 1.250.21 = 0.3125 10 calls = 3.125 $312.5 If OEX rises 5 points, with in the $ calls, you're ahead 5 - 2 = 3 30.96 = 2.88 1 call = 2.88 $288 Thus, seems that you're only ahead with out of the $ calls after an OEX move of greater than about 5 points. Anything less, you'd be better off with an in the $ - including of course bad trades. Does your % of trades producing greater than a 4 point correct move warrant out of the $ options? Or have I screwed up on my calculations or understanding of options? This stuff is confusing. Digger