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| User Info | Would like to trade my first options; entered at 2012-06-02 01:17:19 | |||
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Gamma Posts: 5592 Registered: 2008-01-20 Northern CA 
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Go learn to use the free calculator at ivolatility. There. you can enter any number of "what if" scenarios. Warning: It is somewhat tedious. But excellent. You might say "what if SPY is at 97 and I have 45 days left to expiry?" "What if SPY is at 86 with 14 days left? Whatever you learn by doing such an exercise will be of value. But the one thing you cannot judge in advance (without at least something like the above exercise) is the answer to the question "when and under what conditions will I know I am wrong, dead stinking wrong, and it's time to bail and salvage what few pennies I can?". Because you can be right on direction and wrong on timing. You can overestimate how far the move might extend. (personally, I think you are doing that, but let's leave my market opinion out of it) You can be faked out multiple times. SPY options are not cheap, and, they are bound to be especially not cheap with the volatility we've had of late. But if you buy them dear, they can get incredibly cheap very shortly after you own them, if you stumble. There are lots and lots of ways to go wrong with options, but the question you ask, which is essentially "if I make the correct call and the option flowers within the time I have allotted even if maybe the market doesn't get all the way to my target, will there be someone there to pay off my bet?" The answer is yes. Whether you will be judicious enough, or scared enough, or wise enough, or intelligent enough, or savvy enough, or watching enough to take the money when the gettin's good, is absolutely unpredictable. It is very, very common for longer term options to get close to your target (on a big market dump) and then, while you are not especially watching, decline badly in value if the market makes a "V" shaped move off a panic bottom. This will really wound your options, and in my experience, they will not recover. In other words, your "doomsday" options will flower to the max on a massive intraday plunge, and if you don't take them off then, you'll never see that high of a price for them again. This forces you to watch more than you might want to. 2012-06-02 01:17:19
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