Originally Posted by
Columbia
It's one strategy just as selling covered calls, that everyone seems to think is risk adverse, is. I've made quite a bit of $$$ buying way out of the money calls on (ALK, AAPL for example).
Remember, you can sell the options at any time-you don't have to wait until the expiration date. With the Jan 12.50 call sitting at 1.10 right now, if the underlying stock goes to 11.70 in the next 2-3 months, the option "should be" around 1.50 or a 36% increase with just a 6% in the stock price.
It's a simple way to leverage stock price increases over the short term. With oil coming down and industry estimates going up, it might be worth a look to some. Should be interesting to see where we are mid July-Aug.
Talking about percentages when talking about buying selling calls (when compared to the underlying stock) is an apples to oranges comparison. Of course you are going to make a bigger percentage gain with the option. And.. you are correct that you can sell that option if it goes up to collect that gain. No argument there. The question is... will you? hehehehe Let's suppose that you are praying for it to hit the $13.60 in order to make money.. with the deep in the money call, your percentage gain is waaaaay bigger, but I tend to not look at percentages in options because you don't play with the same amount of money as you would if you were strictly investing in the underlying security. BTW.. I am glad you made money in AAPL options.. their premium is way to scary for me. But I do think that this is a good time to buy the underlying.. I have an order in right now.. YMMV of course
For anybody: Do you ever long the option and then short the stock? This is a Jim Cramer idea, and I have tried it a couple of times.. you literally cannot lose money.. it's hard to increase the gain you have locked in with the short.. but you definitely cannot lose money doing that.. I was wondering is anybody else has gone this route..
Great discussion.