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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 i
by 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 agoI suspect you meant to type "2. Buy in the money options"
- erpellan 8y agoGiven the context, wouldn't 'out of the money' options make more sense? You win big if the price goes into the money.
- anoncoward111 8y agoI 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 agoThat'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.