In your Investment House newsletter, specifically the option recommendations, you list out of the money option positions as a safer investment. I am still in the learning process, but I thought out of the money options are riskier since the underlying stock movement must be greater and you have very little intrinsic value. Also, your report does not recommend entry points on the options. I appreciate any information you could provide on this matter.

When looking at the plays, you need to read the ‘Buy Point’ and ‘Position’ sections together. If a play is aggressive, that usually means it is a play from that point and still has some resistance to conquer. The aggressive position goes with that play. The ‘safer’ play is when there is near term resistance (e.g., a down trendline or a breakout point) and the entry point is when the stock breaks that resistance. That breakout point is higher than the aggressive play, so in many cases the options selection is at a higher strike price than the aggressive play. In other words, you would not buy the ‘safer’ option play until the stock has broken the resistance. At that point the option we are looking at is usually in the money. Only when we are looking 4 months or more out do we look at options at the money. Otherwise when buying options we almost always buy in the money.

As for entry points, we don’t look at the option price as our cue to when we enter but instead use the stock price as the cue. As the option price generally moves with the stock movements, when the stock hits our buy point, that is when we enter on option plays as well.