I have a question, no hate please. What’s the benefit of buying and holding calls that are at least six months out? I buy the dip on spy but have found the sweet spot for me is around six weeks DTE. Any further out, I get screwed by theta battling with delta, I feel like. Am I missing a strategy?
Posted by Unique_username93_
7 Comments
Longer dated options have less decay per day and you have more time to be right.
Shorter term options have more time decay but more bang for the buck. However, they go into the crapper faster if the stock moves against you.
If you can find stocks that move significantly for you in six weeks then that is the better choice.
It can be that someone is Edging against a position.. let’s not forget that options are a lot of times used to edge against a position… although nowadays everyone is using it as a 0DTE way of life lol, it was not originally made for this..
Yep that is quite the dilemma, isn’t it? The further out you go, the less theta burns you but the more of your premium is pure extrinsic. That means you’re renting exposure, not owning it.
Six weeks from expiration feel sweet because delta moves fast and theta hasn’t yet hammered the option. But don’t think of LEAPs vs short-dated as right or wrong. They’re just different tools: laeps are a slow-burn delta substitute (stock-lite except it is NOT a stock replacement).
You go shorter DTE if you want tactical convexity: you are basically saying that the market is underpricing the possibility of a fast move to the upside.
If you feel like theta is always fighting you, it usually means you’re paying too much for convexity relative to realized. The trick isn’t which tenor: it’s whether implied is overpriced when you buy it. And for that you always have to compare it to realized volatility. Always.
Good luck.
That’s like taking a leverged long bet, but with very limited max loss compared to what would happen if you’d just buy underlying stocks with leverage. And the more OTM they are, the higher leverage you can get.
For example, lets imagine you NVDA will grow by 50% and you have $10000 to invest into it.
Current NVIDIA price is $177.5, what you believe it would be in February is $266(+50%)
So how would you invest that money? There are a few options:
1) Buy $175 Calls, each costs $20 so it would be just **5** calls for $10k. How much would you earn on that if price is $266 on feb? about **$35k** profit.
Sounds nice? But lets try further OTM calls!
2) Buy $220 calls, each costs $5, so it’s whole **20** calls!
And your porfit at $266? **$77 thousand dollars**
3) Now risk even more and buy $240 calls, each costs $2.77 so it’s 37 calls for $10k
Your profit at axpirration? **$80 thousand dollars**. But if it shoot to $266 earlier? it could be up to **$120k**
4) Now lets say you want to risk it all and earn even more in hope it would shoot there before february?
You can buy $300 calls for $0.42 each, that would be **250** calls and your profit could jump to **$260k** if price gets to $266 until the end of October
You can use this calc to see how it goes [https://www.optionsprofitcalculator.com/calculator/long-call.html](https://www.optionsprofitcalculator.com/calculator/long-call.html)
You would use longer dated options to manage the risk in your portfolio’s exposure to changes in vol because Vega is greater… but that would be more for if you’re using a long/short gamma strategy.
Otherwise, it’s more institutions using long-dated options to hedge equity positions
you dont have a fundamental understanding of option pricing and implied volatility
read [Option Pricing and Volatility ](https://www.etsy.com/listing/4366790985/option-volatility-and-pricing-advanced?gpla=1&gao=1&&utm_source=google&utm_medium=cpc&utm_campaign=shopping_us_-books_movies_and_music_b&utm_custom1=_k_Cj0KCQjw5onGBhDeARIsAFK6QJZY3yQ8LS_h8s5GNJUR3VR0r2iFVkU0wVLtOPMXtSzj1IpCd2Y_KEQaAixFEALw_wcB_k_&utm_content=go_21500569338_164907277163_707558291657_pla-2591745601632_c__4366790985_12768591&utm_custom2=21500569338&gad_source=1&gad_campaignid=21500569338&gbraid=0AAAAADtcfRJ2tvxrLtscdwdi2lildUtMC&gclid=Cj0KCQjw5onGBhDeARIsAFK6QJZY3yQ8LS_h8s5GNJUR3VR0r2iFVkU0wVLtOPMXtSzj1IpCd2Y_KEQaAixFEALw_wcB)
Are you buying ITM, ATM or OTM? The greek exposures changes (and as you see, time also has an effect on the greeks).
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> I buy the dip on spy
One thing that might be happening here, is that IV tends to spike on dips. So you might be paying up for IV. When SPY rallies that IV compresses and reduces the premium, so fighting against your delta gains.
really depends on your structure though.