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leemalone2k3

03/23/09 8:14 PM

#19579 RE: The Night Stalker #19577

Yes there are all kinds of strike prices. The further away from the underlying stock, the cheaper they are, because there is a lower probability the stock will reach that strike. But when they do- kaboom!

But now open your mind to this:

Options lose value based on time. So if you can sell time, your odds of making a profitable trade go in your favor. So when you look at volume on options, consider how many of those trades are shorts (selling premium) compared to going long (buying calls or puts). Every time you buy a call or put, the clock begins to tick and the option begns losing value.

If you ever get a chance to get down to the CBOE in Chicago, ask any of the option floor traders what they are doing and they will tell you they are in some type of spread, rarely will they buy and hold a straight call or a put because of the risk.