
Midnight Ninja
Total AssetsSomewhat risky
You can't play with expiration day options this big. I've played a lot of options, and I've set strict rules for myself by now:
1- No more expiration day plays. The odds of winning are too low, and there's no time for error. If you're wrong, it's zero.
2- No more small-cap stocks. The trading volume for options on small-cap stocks is too low. With less liquidity, it often happens that the stock price rises but the option price doesn't move because there's no volume. This point is crucial.
3- Now, the strategy for options is becoming more and more like that for the underlying stock: buy calls when the price is low, usually for expiration over a month out; short when the price is high. Usually, if a stock has risen for two consecutive weeks, it's time to go short, buy a two-week put. The odds of winning are high, except for small-cap stocks. Under this strategy, you can average down. The most recent Microsoft single-month call went from -20% at most to +20%, meaning one day's gain was enough. When I usually buy this kind of single-month call, I double the position when the option drops 50%, and if it drops further, I double it again. This way, the cost basis becomes very low. Moreover, after the "Magnificent Seven" finish a market cycle, there's basically a pullback within two weeks. Just catch it.
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