ABOUT OPTION STRIKES
dollar for dollar front month options ARE THE ONLY ONE’S TO PLAY…all other’s is LAS VEGAS
example—CSCO 17—CSCO apr 14 call 3.00…14 + 3.00 = 17…CSCO’s actual stock price…all other strikes are LAS VEGAS
example—GOOG 560, goog april 500 call 60.00…500 +60.00 = 560, GOOG’s actual stock price
front month at dollar for dollar—also–NEVER RUN OUT OF TIME—2 to 3 days before OPX–you can sell the april (about to expire) and switch to MAY ( one month out) for the same price.
Let’s get back to THE CSCO example. Let’s say you buy 100 shares for $1,700. and CSCO drops 50% in after hours.
you lose $850 dollars—
with the $3.00 call, you only lose $300—
WAY LESS RISKY TO OWN THE CALL, THAN THE SHARES.
Let’s say you have a $3,400 account. you buy 100 shares of CSCO.
your position size relative to your account size is 50%. that’s WHACK TO THE MAX!!!
if you owned just the one $300 call, that’s approximately 8% of your account, position sizing. still a little too high, but a lot less risk.
a $10,000 account, is great for buying up to 2 DEEP ITM calls (or dollar for dollar) of CSCO.
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