Options Are Barely Tradeable As They Stand

11% gain in the Dow. That is nuts.

Honestly, whether or not we hold these gains is irrelevant in my eyes. As long as the price action is mixed up from here, it will make trading the swings so much easier; if swings are reinvented in the market place.

In regards to trading options, I hope you are content trading stocks for the short term. Options are barely tradeable as they stand. In fact, let me give you a quick run down of why options are not worth the expensive price tag.

Last Friday, I watched the DIA (DIA) open at $82. The Oct 82 call opened at $4.65.

From that point, the DIA plunged, bottoming at $78.84. The call had only dropped to $3.00.

From the bottom, the DIA rallied to its daily highs at $89.08 (a 13% move), the call traded up to $8.30.

At the close, the DIA settled at $83.74, while the 82 call closed at $6.20.

After observing these unbelievable moves in the averages, I realized that had you owned this call (open-close), you would have earned a 78% return. Disgusting, considering that the Dow moved so much in a short period of time.

To put this into perspective, with reasonable levels of volatility, you would only need a 1-2% move to make that type of return.

In closing, buy Stock.

Posted in Categories: Contributor, External Research, Options, Stocks, USA.

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