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Strategies & Market Trends : BEFRIEND THE TREND Short-term Options Trading Thread -- Ignore unavailable to you. Want to Upgrade?

To: Hans who wrote (397)	2/2/2002 6:52:39 PM
From: SusieQ1065	Respond to of 4058

How do you pick the stock and strike price? looking for stocks that might make big moves, but don't know which way they're going...(ex: upcoming announcements, earnings reports, conferences, upcoming FDA decisions) I assume the exp date is always 1 or 2 months out. front month best i think....time premium our enemy, volatility our friend...just looking for a big move to cover the whole position, set a profit goal, and out you go. and as Dan mentioned before...it's ideal to find something that doesn't have volatility priced into the option...

To: Hans who wrote (397)	2/2/2002 7:22:59 PM
From: mishedlo	Respond to of 4058

Most options expiring worthless is an "overdone simplification". If you were a firm believer in that you could sit back and sell options all day long and make millions on the fact that options expire worthless. Take a look at INVN (lets go back a bit to about 26) and say you sold the strike 25 April puts and calls both, thinking they would expire worthless. Well the PUTs did for sure, but you lost your ass on selling those calls. Did the seller of those calls have an advantage? Try that at 10, and you are toast if your position was big (and you were stupid enough to hold firm). On momo-stuff in a moving market, the option BUYER has the advantage. In a sideways market on a non-trending stock the SELLER has the advantage. But.... The seller has an obligation as well as UNLIMITED RISK for selling those options. The option buyer has a predefined risk, and in comparison to selling short (and holding overnight), a better chance of sleeping easier in many situations. That said.... Of course most options expire worthless. For starters all put buyers in a rising market lose. All Call buyers in a falling market lose. Thus 1/2 are doomed from the start to be wrong. Then take into consideration all the open interest on non-sensical strikes so far out of the money, those will be woirthless too. In a sideways market the put and call buyer are at a disadvantage. BUT.... If you start doing something so silly as to selling calls way out of the money, and have a surge like INVN, or puts way out of the money on something like ENE thinking it is "easy money" to bank those profits on the "fact" that "options expire worthless", all I can say is if you guess wrong on that, you will in fact be wiped out at some point. The ODDS say the option seller has an advantage (and he does) There is risk associated with those odds. Huge risk. M