Nice post! Good framework for sourcing lesser known names for higher risk adjusted returns. Just curious why do you prefer long dated call options? Time decay is working against you as the options move closer to expiry date especially once the options has a shelf life lesser than 6 months . What's your strategy to manage these risks? Personally, I have found more success selling put options.
Hi, great question I generally like those long dated call options for a couple reasons. First typically the implied volatility is lower on long dated options which lowers cost. Second, yes while their is time decay it is slow and if my thesis on creating intrinsic value then the time value can go to 0 and I am still up significantly. It is that intrinsic value I am banking on, not time value which is why I choose long dated options so the thesis has time to play out.
Options give me a chance to generate higher returns in certain situations but they do certainly come with trade offs. There are just some risks you can't take off the table.
Selling options is fine but it is a large risk for a small reward. Another reason why I like long dated options is if I find a few months out from the expiration date it has not progressed as expected and can roll up the contract to a later date if I would want.
Thanks for sharing this. Lots of good lessons especially on sizing
Glad you enjoyed the article!
Nice post! Good framework for sourcing lesser known names for higher risk adjusted returns. Just curious why do you prefer long dated call options? Time decay is working against you as the options move closer to expiry date especially once the options has a shelf life lesser than 6 months . What's your strategy to manage these risks? Personally, I have found more success selling put options.
Hi, great question I generally like those long dated call options for a couple reasons. First typically the implied volatility is lower on long dated options which lowers cost. Second, yes while their is time decay it is slow and if my thesis on creating intrinsic value then the time value can go to 0 and I am still up significantly. It is that intrinsic value I am banking on, not time value which is why I choose long dated options so the thesis has time to play out.
Options give me a chance to generate higher returns in certain situations but they do certainly come with trade offs. There are just some risks you can't take off the table.
Selling options is fine but it is a large risk for a small reward. Another reason why I like long dated options is if I find a few months out from the expiration date it has not progressed as expected and can roll up the contract to a later date if I would want.
Hope that gives a little bit of clarity here!