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EC SD | If I like the long term (months to years) prospects for a stock, I almost always just buy the stock instead of buying call options. Why? Well if the stock is "hot" at all, the implied volatility is likely over 50%, and even worse sometimes higher than 80%, for at-the-money calls a few months out. The option premiums are very high when the IV is higher than 50%, IMHO. Now if the IV is lower than 50%, I may give the option a try, but my experience has been that I lose on long calls more often as I win. Others may have more luck than I do though...
If there is a catalyst to make a stock move quickly, I sometimes buy long calls for a week or two to cover the catalyst event. Again, not a very good strategy in my direct experience, because the options are already priced for that catalyst event, and after the event occurs the IV collapses so even if I was right on the move, the value of my long call declines a lot.
I do write a lot of options, both puts and calls. When naked shorting stock options, there is a large risk, so really need to use spreads to protect against a catastrophic loss, if caught on the wrong side of the move. I use this strategy for quick cash, and usually play it less than 2 weeks to expiration, so that theta is strongly at my side. Often closing the short position in a day or two... It is a bit like a gambling habit, on the side, as the majority of my brokerage account is in diversified (mostly) buy and hold investments.
Currently short on NVDA puts and short on MU calls... Both currently well out of the money, and expiring tomorrow, so fully expecting to keep all premium as they expire worthless. | |
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stocks, at what ratio or point do you buy the stock and not a call option?
