Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe -- Ignore unavailable to you. Want to Upgrade?

To: jt101 who wrote (705)	12/4/2002 9:18:19 AM
From: Dan Duchardt	Read Replies (1) \| Respond to of 1064

jt, I've tried a couple of different approaches using options to protect against runaways in the futures. Had I been more patient with some of the scenarios I would be a lot better off. At this point however I've about convinced myself that it is best to stick with short term trading for the futures, and use the options for most other longer term positions. You are quite right about the OEX spreads. $1 is very common for anything ATM to ITM, and worse in the premarket if you are inclined to trade then. I'm not looking for a lot of size on these so far, so the liquidity is not a big issue as long as the option quotes remain centered on fair value relative to the index. I've not done very well with long OEX current month options, mostly because I have not let the winners run sufficiently. I'm trying now to catch the next month out when prices are attractive. I think it is worth it to pay the extra premium for the longer term because of the slower time erosion. Losing several points to time erosion in the last few days to expiration is no fun at all. I typically do spreads of 30 to 50 points to limit the potential loss, and still leave enough room to make some money if it goes my way. I do tend to adjust these often, so I am losing a lot to the spread. I need to do better with that. On QQQ I decided to work diagonal spreads with long LEAPS calls and current to next month short calls. I also throw in a few long puts if they get cheap enough so that I make a few $$ if there is a down move to or below the short strikes. It's not very scientific, but I'm holding my own. I could use a nice close on QQQ around 26 for December. If we lift off again from current levels I will probably roll out to January early. I waited too long last month. Hopefully, I will soon have all the near term strikes above the LEAPS strikes. Having them inverted is not very comfortable. Your put diagonal spread looks pretty good to me at the moment. I think there is a chance December will close below 26, but I doubt it will go a lot lower that soon; you should have a good spot to roll out the shorts if they don't expire worthless. Good luck with it.