TZOR gave some great insight into some of the more advanced options strategies! I think it is worth reading slowly, ESPECIALLY his post about the different variables that are considered when pricing options.
Personally after a number of years investing using options (having lost 100% and pocketed 500%) is to use it to expand portfolio while minimizing risk.
I recall writing this before, but to clarify for folks who are interested of merging options trading into portfolio management for a Retail Investor.
Most of the time now, I use options to increase a position in an investment WITHOUT increase more capital. At the moment, NWBO Jan 2017 $10 Strike options are around $2.15.
Instead of committing another $10,000 to buy a little over 1100 shares, I would increase my position in NWBO by buying the $10 strike in Jan 2017 for a total of $2,150 for the option to purchase 1,000 shares in the future.
Why is this important, in case between now and Jan 2017, something extremely negative occurs like the failure of the DCVax-L trial? Well in the scenario above, I would lose only $2,150 instead of $5,000 (assuming full $10,000 investment and PPS drops 50%). If something extremely positive happens (L is halted and PPS increases by 100%), then I still have the option to purchase 1,000 shares at $10 a pop even shares are now $20.
What makes this strategy special is that $8,000 is held in cash (or dividend generating stock) and never at risk WHILE I still maintain the same exposure to NWBO that I originally wanted to purchase.
The downside is that if by Jan 2017, NWBO has not moved from it's $9.00 PPS then I lose $2,150 while if I purchased the stock I would've lost nothing.
For folks who want to consider another way to play options while still trying to adhere to their risk preferences, keep portfolio diversify, and capture increased upside. Over the years, I've moved away from making large options bets (when available cash was in 4 digits) to ensuring my capital was optimally allocated according to the gains I want to see with the risks I am willing to take.
I've tried several of the more advance options strategies, but I find it too time consuming to not only analyze the stock but also the options, the pricing, the volatility, and what I can risk 100% without taking me out of the game.
My 2 cents for folks who wish to use the above strategy for the NWBO investment. FYI this strategy does not work very well for more established blue chips as they just don't move much.
AI
