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Multi leg options sound weird on paper but aren't too hard to understand when explained properly. An option is a bet on the future price of a stock. If you thi

Multi leg options sound weird on paper but aren't too hard to understand when explained properly. An option is a bet on the future price of a stock. If you think that Stock XYZ will go from $15 today to $20 next month, you can buy an option that will reflect your prediction. A multi-leg option allows you to bet on the "magnitude" of a stock's price change, rather than the "direction". For example: "Tesla reports earnings next month. They're either gonna be REALLY good, or REALLY bad. So let me buy a multi-leg option that predicts a 10% price jump either up or down". You'll make money whether Tesla goes up 10% or down 10%. You'll lose a ton of money if Tesla remains roughly the same price.

jonknee 8y ago
> A multi-leg option allows you to bet on the "magnitude" of a stock's price change, rather than the "direction". Or simply define risk/reward (spreads and the like). That's especially useful if you want to sell premium and not risk getting killed.
ataturk 8y ago
The problem is that the earnings report being bad doesn't mean "stock goes down" or that it will fall 10% or anything, really. If your exact scenario doesn't play out, you're losing money on those options. Multi-leg setups aren't going to help you much, either. It's bullshit, don't do this. Stocks are manipulated, okay? It's very subtle, but it's a fleecing ceremony. For example, I once bought calls on DIS because my thesis was that the new Force Awakens film would make them a lot of money (which it did). However, ESPN totally shit the bed and cost DIS dearly and thank brought the stock down. Calls didn't do ITM, fucked that up big time. It's all a big fucking game is all it is and the individual investor is the sheep to be sheared no matter what. It is the law of the universe--you are the sheep getting sheared always and forever. Don't fucking do this stuff. If you're not a securities trader with a real hunting license, don't go near this shit. They will front run on the buy and the sell side, fees and taxes will eat up any profits you make. You are picking up pennies in front of a steamroller.
wdn 8y ago
Actually, it doesn't work like that. If a stock is volatile, as TSLA is, the out of money (OTM) options will take that into consideration and the premium for it will be very very high. A OTM straddle options trade probably a very bad choice. Like you said, if TSLA don't make a big move, you will lose. Even if they do make a big move, you will still lose because you are opening a trade on both directions. My personal opinion on options is this: 1. Find stocks that move 2. Buy in the motion options 3. Expiration at least 6 weeks away, prefer to be longer. If price move into your target, great, take profit early.
- hhmc 8y ago
  I suspect you meant to type "2. Buy in the money options"
  - erpellan 8y ago
    Given the context, wouldn't 'out of the money' options make more sense? You win big if the price goes into the money.
- anoncoward111 8y ago
  I mean, sure, I agree. I was merely describing a type of multi leg option. The premium on a 10% move option wouldn't be as high as you think. There's a lot of risk/reward here. You'll pay a really high premium if your prediction is 'i think it will go up 2% in the next 9 months" :)
- bcheung 8y ago
  That's just one approach. There's no right or wrong answer. You can also find stocks that you don't think will move at all, or that will only trade within a narrow channel and design calendar trades around it.

jonknee 8y ago

> A multi-leg option allows you to bet on the "magnitude" of a stock's price change, rather than the "direction". Or simply define risk/reward (spreads and the like). That's especially useful if you want to sell premium and not risk getting killed.

ataturk 8y ago

The problem is that the earnings report being bad doesn't mean "stock goes down" or that it will fall 10% or anything, really. If your exact scenario doesn't play out, you're losing money on those options. Multi-leg setups aren't going to help you much, either. It's bullshit, don't do this. Stocks are manipulated, okay? It's very subtle, but it's a fleecing ceremony. For example, I once bought calls on DIS because my thesis was that the new Force Awakens film would make them a lot of money (which it did). However, ESPN totally shit the bed and cost DIS dearly and thank brought the stock down. Calls didn't do ITM, fucked that up big time. It's all a big fucking game is all it is and the individual investor is the sheep to be sheared no matter what. It is the law of the universe--you are the sheep getting sheared always and forever. Don't fucking do this stuff. If you're not a securities trader with a real hunting license, don't go near this shit. They will front run on the buy and the sell side, fees and taxes will eat up any profits you make. You are picking up pennies in front of a steamroller.

wdn 8y ago

Actually, it doesn't work like that. If a stock is volatile, as TSLA is, the out of money (OTM) options will take that into consideration and the premium for it will be very very high. A OTM straddle options trade probably a very bad choice. Like you said, if TSLA don't make a big move, you will lose. Even if they do make a big move, you will still lose because you are opening a trade on both directions. My personal opinion on options is this: 1. Find stocks that move 2. Buy in the motion options 3. Expiration at least 6 weeks away, prefer to be longer. If price move into your target, great, take profit early.

hhmc 8y ago
I suspect you meant to type "2. Buy in the money options"
- erpellan 8y ago
  Given the context, wouldn't 'out of the money' options make more sense? You win big if the price goes into the money.
anoncoward111 8y ago
I mean, sure, I agree. I was merely describing a type of multi leg option. The premium on a 10% move option wouldn't be as high as you think. There's a lot of risk/reward here. You'll pay a really high premium if your prediction is 'i think it will go up 2% in the next 9 months" :)
bcheung 8y ago
That's just one approach. There's no right or wrong answer. You can also find stocks that you don't think will move at all, or that will only trade within a narrow channel and design calendar trades around it.