MM2
I use what I call the 1% rule to help select an option strike price.
The 1% rule says to limit the time value portion of the option to less than 1% of the stock
price. If you limit the time value portion of an option to 1%, the stock price only
has to move up or down 1% for the call or put to breakeven and start profiting, with time
decay on your side and a high delta as well as volume being high.
Its good for the mind I find to think like this.
I have a calculator and database queries to calculate the time value portion of an option and the
percentage.
As long as the mix of being in the money and expiry days is right and is less than 1 %
of the stock price it is a candidate for a long call or put.
So the example of Agilent A attached is to find this mix less than $120 after the query finds
the ticker.
Make say 1/3 of the premium paid as a stop loss and when BEP is reached take half off and
leave the rest to run until we see signs of weakness in the underlying or time decay really kicks in.
Simple I think and there are so many candidates for trades its mind blowing at times.
HTH
I use what I call the 1% rule to help select an option strike price.
The 1% rule says to limit the time value portion of the option to less than 1% of the stock
price. If you limit the time value portion of an option to 1%, the stock price only
has to move up or down 1% for the call or put to breakeven and start profiting, with time
decay on your side and a high delta as well as volume being high.
Its good for the mind I find to think like this.
I have a calculator and database queries to calculate the time value portion of an option and the
percentage.
As long as the mix of being in the money and expiry days is right and is less than 1 %
of the stock price it is a candidate for a long call or put.
So the example of Agilent A attached is to find this mix less than $120 after the query finds
the ticker.
Make say 1/3 of the premium paid as a stop loss and when BEP is reached take half off and
leave the rest to run until we see signs of weakness in the underlying or time decay really kicks in.
Simple I think and there are so many candidates for trades its mind blowing at times.
HTH