Explore Your Options  |  FEB 2005

Explore Your Options by Tom Gentile

Stocks & Commodities V. 23:2 (86): Explore Your Options by Tom Gentile Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. DAYTRADING OPTIONS Q: What is the best strategy for short-term daytrading? A: In my opinion, options are not for daytraders. For short-term traders, simple call and put buying is probably the most widely used strategy. Bullish traders buy calls. Bearish traders buy puts. I trade short term at times, and I find that in-the-money (ITM) options work best because they have a better level of disaster protection, yet work like a stock due to their high delta†. I like options with higher deltas because they see greater price changes for each point of movement in the underlying stock or index. For example, an option with a delta of 0.75 will increase 75 cents for each point move in the stock. However, an option with a delta of 0.33 will increase by only 33 cents for every point move in the stock. As a final note, calls have positive deltas and puts have negative deltas. So, when trading puts, I look for higher negative deltas — for example, -0.8 is better than -0.4.

by Tom Gentile