I am still confused over the strategy involved in recommending puts or calls with low or no open interest when you have repeatedly stated that you prefer options with 100 OI or better yourself. Are we to ignore your advice? Do you yourself buy options when there is no OI? Also it would be reassuring to hear from you that when you are recommending these low or no OI options that you are not selling the relavant puts and calls yourself. If these questions have occured to me I am sure they have occured to others as well and it would be reassuring to me if not to the readership in general if you would outline and clarify your position for me on these points. (July 13, 2002)
It is our general rule of thumb to buy options with 100 or more open interests primarily because that allows us to better use stop losses and shave the spread. In order for a stop on an option to work it has to be triggered by a sale at that level. If there are not many ongoing trades in the option (the problem with low OI) then you cannot utilize stops effectively. We are driven by the technical pattern of the play and, if using options, the ability of that option to make us an acceptable level of profit on the play. If the right combination of pattern and option to make our money exists (we have to bypass some good patterns because the option deltas and prices just won't cut it) but there is low OI, we will still make the play knowing, however, we will have to monitor the trade without a stop. No big deal really; I did that all the time when I was working another job. There were sometimes I could not make plays because I knew I would be too busy, but I worked around it. There have been many times the play was so good but there were no OI; I was the only OI in those options and still made great profits. I just had to be ready to sell and willing to take what the market maker was willing to pay. On no positions we discuss in the report are we taking opposite positions to those discussed or taking positions before the plays are discussed unless it has already been on the report and has hit a buy point.
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