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 : Win Lose or Draw : Be A Steve, Make A Call -- Ignore unavailable to you. Want to Upgrade?

To: Win-Lose-Draw who wrote (64)	2/1/2003 1:08:53 AM
From: mishedlo	Respond to of 11447

I generally do not play out of the money options. If I did they would be April or July at the earliest. With OTM options you need a strong move in a hurry. Since you said leaps I guess that would be OK but the problem is if we piddle up around and down the time decay can chew you up even if You are correct in direction. I would play QQQ 26's or 27's March or later, and you only need a nominal move in your favor to be OK. The April 27 are 3.50 and if we fell to 20 in april they woukld be worth $7. The april 20's are 50 cents and it is possible that we could fall to 20 at april expiry and the puts go worthless. If somehow we slowly chop our way to 20 up down and around, it is possible that you would never get more that 10-15% ahead, or even ahead at all. A really safe play if you believe in a nasacre at any time this year would be to buy 04 30's for 7.00 and walk away. At 20 they would be worth $10 and nice 43% return. If you expect a lower low say 18 then you have a 71% gain. If you keep playing these and take into account max pain ramps then 100% is achievable. All this is easier said than done and requires patience to sit thru bounces. If you think the spoos are headed to 600 (the DEC 900 is 110). That is 11,000 per contract! But at 600 they would be worth 300 or nearly a 200% gain. This is a question of timing as well as greed. Apr 925's are 88 (8,800 per contract). If we fall to 775 by April, they would be worth a minimum of 150, nearly a double. To stay green, you need 837 or lower at april expiry. Any move down now, and you get 100% of it, right off the bat.If we fell to 800 anytime between now and april you are worth $125. Contrast that play with buying March 80's for $20. If we start chopping around for a month and a half on the way to 800 you are sweating big time. OTOH you are only paying 2K per contract vs 8800 per contract. So you could buy 4 of them for roughly the same price. If we fell to 700 those 4 contracts would be worth $100 per or 40K on your 8K investment. The 8800 925 contract would be worth 22,500. That is how you have to look at these things. With reasonably deep ITM contracts you only need to be right any time within your timeframe, with OTM you get a bigger reward, but with lots more pressure. I think OTM puts make more sense on something like IBM. Jul 70's or 75's perhaps hoping those gaps close anytime between now and then, without tieing up a fortune. The deeper ITM you go and the further out (more time) the easier it is to hold for a decent profit. Deep enough ITM acts just like a pure short (but with cash to spare so you can leverage if you want). For example if you had $24K you could short 1000 shares of QQQ and be worried about margin. With Puts you could buy 3 Mar 32's at triple the leverage, or 1 mar 32 and still have 2/3 of your cash to do something else with. These are all the considerations one needs to make. Leverage will kill you if wrong. This make any sense? M