For the longest time I have been of the mind that I will never buy options because of the time decay feature that exists. I’ve since amended my stance on buying options because there are circumstances when they may be useful.
These situations are when the stock is experiencing low volatility thus making the options prices cheaper. When this occurs you can benefit greatly when the stock moves big in one direction. Volatility will increase dramatically when if the price falls and decrease dramatically if it rises. Being on the right side of the move can be very profitable in a short space of time.
When buying puts or options because of low volatility environments make sure you pay attention to the following:
- Get filled at the right price
- Buy further than 30 days till expiration so time decay won’t hit you as much
- Look for explosive opportunities for when the stock is going to move quickly in one direction
- Don’t hold past a few days because time decay will eat away at your intrinsic value
- Use the TTM squeeze to time your entries
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