I follow your recommendations carefully and am not certain what I should do when a stock gaps up ten points away from your in-the-money call. Should I add $10 to your recommended strike price and use the same expiration month (assuming there is sufficient open interest) or stick to the recommended play? (November 15, 2000)
The options we put in the reports are based on the stock's closing price and where we want to take the position, which may not be where the stock closed the previous session. We look at deltas and open interests as part of determining what options we want. That said, if a stock gaps higher, as seen by our Team Trades, we don't automatically race up to chase it, but let it come back to test the move. That does not mean it will come all the way back; it usually stops somewhere in between, and that can still put the options we stated in the report several more points in the money. If a stock gaps up, tests the move, and then starts up well above where it was, we do look at higher strike prices on the options, checking open interests and deltas. If we like them, we often go ahead and pick up the higher strike if we can still have a similar delta for less money out of pocket. When we are on the go, our brokers automatically know to be looking that information up for us when we start talking about a higher strike option.
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