What do you thik about these 3 options (LEAPS)

[jdoe]

GOOG Jan 2007 150 PUT 3.50
INTC Jan 2008 35 CALL 1.30
YHOO Jan 2007 55 CALL .80

Jdoe

[ctv1116]

uhh...you expect GOOG to fall in 1/2 and YHOO to double?

[kiffl]

[ QUOTE ]
uhh...you expect GOOG to fall in 1/2 and YHOO to double?

[/ QUOTE ]

I think you should play it the other way around.

[jdoe]

not "and" maybe "or"

I have to say i think i like the intel call better

PE < 20
Massive market share

but who knows....?

[Paluka]

I don't understand why you guys choose to analyze options in terms of where you expect the stock to be rather than in terms of volatility.

[jdoe]

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I don't understand why you guys choose to analyze options in terms of where you expect the stock to be rather than in terms of volatility.

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please enlighten us

[crazy canuck]

He means that option prices are dependant on volatility, not just the stock price. So you could be right about the direction of the stock, but if volatility drops, you will not earn as much as you would have by purchasing the stock. Conversely, if volatility increases you could earn more.

Also, are you aware of time decay?

[arod15]

I expect google to fall but 150 is to low for me. I love LEAPS but perhaps 200 is more realistic. Google is currently trading at 280ish i believe havent followed but i think 150 is unrealistic.

[DesertCat]

[ QUOTE ]
GOOG Jan 2007 150 PUT 3.50
INTC Jan 2008 35 CALL 1.30
YHOO Jan 2007 55 CALL .80

Jdoe

[/ QUOTE ]

I don't buy or sell options because they never seem to make sense. Perhaps some of the more savvy option traders can help me better understand what I'm missing. How is the PUT on GOOG a good idea? For example, let's say I believe GOOG is worth much less than today's price, but it's a great business and I'd love to get in at $150.

So I sell a put on GOOG for a thousand shares at $150, and earn $3,500. But for almost the next year and a half, I have to keep $150k available to make good on my put if GOOG does decline. This means I have to keep that cash in a money market or a CD, and earn 3-4% a year. Combined with the premium from the put, I'll make 5-5.5% per year.

Why is this a good idea? It would seem like I'd want a premium of closer to $15 so I can make at least 10% per year. Or is there another way to make money here?

[Sniper]

Cat, I assumed he meant he was looking to BUY those options.

[DesertCat]

[ QUOTE ]
Cat, I assumed he meant he was looking to BUY those options.

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Okay, well that makes much more sense. I guess I've been pondering (way too much) the idea of selling puts on stocks I'd like to own. Still can't make the math work.

[Paluka]

[ QUOTE ]


I don't buy or sell options because they never seem to make sense.



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I'm not sure what you mean here. Option prices are derived from mathematical models which assume certain inputs. Are you saying you don't understand the model, that you don't know what the inputs are, or that you disagree with the inputs?

[Sniper]

Cat, hint... try running the math on shorter term options.

[DesertCat]

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Cat, hint... try running the math on shorter term options.

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I have.

Nov. KO $30 Puts 5 cents. 5 Cents! $35 Puts, 10 cents! Not even close to worthwhile.

[DesertCat]

[ QUOTE ]

I'm not sure what you mean here. Option prices are derived from mathematical models which assume certain inputs. Are you saying you don't understand the model, that you don't know what the inputs are, or that you disagree with the inputs?

[/ QUOTE ]

I understand the model and the inputs. I'm just struggling to come up with specific opportunities that make +EV sense to me. Note I'm primarily a long term investor looking to use options to get in and out of positions I hold.

For example selling puts at a price I would like to get in at, when current prices are a little too high.

[Paluka]

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I understand the model and the inputs. I'm just struggling to come up with specific opportunities that make +EV sense to me.

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The only way to get +EV with an option is to sell it for more than it is worth, or buy it for less. Everything else is just hedging.