What rationale do you use to decide on both the Expiration Month and the Strike Price for the options you list? (August 25, 2001)

  We like to buy enough time to do the job, and we tend to err on the side of a bit more time just in case things do not go as we want. They are less volatile than current expiration options. For calls on individual stocks we prefer two months or more. For puts on stocks, current expiration or preferably the following if available. For strike prices, we prefer in the money to the extent that we can get a decent delta (70 or better) at a reasonable price for what we hope to make (our target) on the trade. In other words we won't pay $30 for an option in order to get a 75 delta if we only hope to make $2 on the move. We may not make that trade at all.

On index options, except for the fractional indexes (QQQ, DJX), time is very expensive and we will buy current month if we are outside of 2 weeks or so to expiration. We are not looking at holding the option long in any respect, so we are a bit more flexible. As for strike prices, on the fractional indexes we will look in the money to get us that decent delta. On the QQQ for example, about $8 in the money gets you a 70 to 75 delta. On the OEX, strikes are $10 apart, and we tend to play more at or slightly in the money as these options are pricey. If the OEX makes a move, it usually covers enough ground to makes us good money even with at the money.


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