Sorry claycourt. I would have to disagree with that. If your broker can't give you proper ATM option prices then find another broker. And if you don't understand IV (implied volatility) of ATM front month options then just study up. It does take some education and experience to get comfortable with some of the concepts. But to say no one on the planet can price them is just incorrect.
Deep ITM options are easy cause their delta is pretty much 1.00. This means they move just like the stock. So if your stock makes a dollar then so will the option.
Selling naked options is one of the most risky strategies you can do. I would only recommend this to very advanced traders in unique situational trades. I would also not recommend cover calls either. This is a very poor strategy that your miss-informed broker might suggest only because it's the extent of his option knowledge. A covered call is a synthetic naked put. Their risk graphs are the same. It gives you limited reward and unlimited risk. Sounds like a losing combo if you ask me.
I would not hedge with deep ITM either. You will be paying a massive amount of money for your hedge. If you own a 100 dollar stock you should be looking to hedge with somewhere between 85-95 puts depending on current IV and pricing of the front month options. This is call a married put and is a great strategy if learned correct. Your risk say with the 90 put is now $10. The thing to remember is as your stock rallies you need to roll your puts up to keep the insurance floor in place.
Education links I use and recommend.
Oh and yes, COME ON YOU GOONERS! Season kicks of next tuesday!
Thanks. Well if you are new and just starting out I would keep it simple. Start with buying just calls and puts and trading vertical spreads. A vertical is buying one strike and selling another strike. Example...
You are bullish on SPY currently trading around 127. You could buy the 130 calls and sell the 135 calls. This would be called a bull call spread.
I would recommend getting a good understanding of vertical spreads as soon as possible. One of the great things about them is that you are hedged against volatility. See as IV rises the options get more expensive. So this is good for sellers but bad for buyers. If you buy just a single call or put when IV is high and during your trade IV decreases, then the stock could move in your direction yet your option could not make any money, or worse could lose money. This can be very confusing and frustrating for a new trader to the options market. So if you buy and sell options in a spread format you are both a buyer and a seller and IV does not affect you as much. It is still something to be aware of but not as much. When I find an opportunity and see that IV is not low then I will look to put on a spread even if a single call or put has a better risk to reward. I avoid IV krush at all costs.
Next I would tell you to get some tools! Good options analysis software will be key in comparing and deciding which options to buy. It can be tough picking the right strike and right month to get the most money out of a move you believe will happen with the stock.
And from there you can progress to more complex strategies. You got Iron Condors and ratio back spreads and broken-wing butterflies. For new options traders these can seem crazy sounding. What they really are, are just different ways to arrange vertical spreads and combine different months.
Keep it simple to start and always continue your education. I am by no means a professional trader "yet." I work at it everyday. So I'm always up for talking shop.
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