Today Tim S. asks, “Often, I see a good trade but I can’t be around to watch it. When I pay up, it goes against me, when I put a low bid in it runs up without me. What can I do?”
Let’s assume that I want to buy a call option on a stock that looks strong, but I can’t be around to watch it. First I come to the realization that I don’t need to “scoop” anything on a pull back. While I’m busy, that “deal” might turn nasty and I’m not around to get out. If the stock is not behaving I will have other opportunities to decide if I want in.
My greater concern is that I will miss a big trade. I start by identifying a price level that will confirm that this is the “real deal”. It could be a breakout above yesterday’s high, it could be a 10-day high. In any case, I need to identify the level. I do not like using market orders. They are a license to steal and on a breakout, you can bet that the thieves will be out. Once I identify the price level, I want to make sure the stock is clearly through it so that I don’t get head faked. If the resistance is at $63 and I’m buying the $60 calls, I want the stock to be trading $63.20. Since I don’t want to place a market order, I will need to calculate where that call might be trading if the stock gets to that level. The delta of the option will help me.
If the stock is at $62.20, the option is at 2.60 and the delta is .8, I can figure that a rally to $63.20 would put the option at $3.40 ($1 x .8 = $.80 + $2.60 = $3.40). This method will work as long as the current stock price is fairly close to the breakout price. If the stock has a long way to travel before I can get filled, I tend to my business and place the trade when I’m not busy. There is no need to reach. Here’s how I place the order: buy the $60 calls contingent on the stock trading $63.20 or higher at a limit of $3.40.
I won’t be around to get out, so I better to make sure the breakout is real. I also take a partial position. If the trade works out – I’m happy. I don’t want to lose money when I can’t evaluate the situation.
Thanks for the question Tim. Let me know which OneOption service you would like to try.