25 lines
1.5 KiB
Plaintext
25 lines
1.5 KiB
Plaintext
187
|
||
Chapter 9
|
||
GaininG ExposurE
|
||
This chapter is designed as an encyclopedic listing of the main strategies
|
||
for gaining exposure (i.e., buying options) that an intelligent option inves-
|
||
tor should understand. Gaining exposure seems easy in the beginning be-
|
||
cause it is straightforward—simply pay your premium up front, then if the
|
||
stock moves into your option’s range of exposure by expiration time, you
|
||
win. However, the more you use these strategies in investing exposure, the
|
||
more nuances arise.
|
||
What tenor should I choose? What strike price should I choose?
|
||
Should I exercise early if my option is in the money (ITM)? How much
|
||
capital should I commit to a given trade? If the stock price goes in the
|
||
opposite direction from my option’s range of exposure, should I close
|
||
my option position? All these questions are examples of why gaining
|
||
exposure by buying options is not as straightforward a process as it
|
||
may seem at first and are all the types of questions I will cover in the
|
||
following pages.
|
||
Gaining exposure means buying options, and the one thing that an
|
||
option buyer must never lose sight of is that time is always working against
|
||
him or her. Options expire. If your options expire out of the money (OTM),
|
||
the capital you spent on premiums on those options is a realized loss. No
|
||
matter how confident you are about your valuation call, you should al-
|
||
ways keep this immutable truth of option buying in mind. Indeed, there
|
||
are ways to reduce the risk of this happening or to manage a portfolio in |