Posted: 10/23/2012 12:37:02 PM
I think you need more time and consider adding safety by going into the money. I first looked at Aprils then went to Julys.
If you are wanting to purely gamble and are willing to risk 100% of the premium then you might consider December..if you are wanting a higher level of safety and chance at success then you go deeper in the money and further out in time.
So lets look at value and the July options.
Currently the 30s are trading for 3.50 or so, and that means you have about 70 or 80 cents in the money value and another 2.70 to 2.80 of fluff, premium which is nothing but time premium and at the money premium for market makers to take from you.
If you go into the money a few dollars and consider this more of an investment and not a hedge or speculation, lets look at the 26 options. They are selling for 6 ish per contract..6.05 or 6.10 or close..so of that there is 4.70-4.80 of intrinsic value, in the money value and only 1.25 to 1.30 of time value and fluff.
So on a percentage basis, the at the money option has 300% fluff/time value versus intrinsic value, while the 26 option has a much lower sub 30% fluff premium. AND if SLV drops nearer to that price, the contract will start adding more fluff value and your drop will be less on a percentage basis versus the 30s.
So you have to figure out what you want to do, is it a gamble or is it more of a safer bet?
I used to do options like 12-13 yrs ago and at first I was ALL gamble, taking risks and going out of the money all the time..then as I started getting smarter I would go more in the money and try to add some safety. Either way, most options expire worthless and the winner is always the market maker.