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Patience is a Double Edged Sword

My subscribers and I finally unwound out of a position in WYE-- it was buying August 45 calls at 1.65. The bid/ask at the close yesterday on these contracts was 220/235, so we can assume that we could get filled at 2.25. That ended up being a gain of 36% in a couple weeks. But it was a tough couple weeks while we waited for the breakout momentum to follow through.

That will always be one of the problems with buying options: you have to be right, and you have to be right fast. That drawback is counterbalanced by the fact that if you are right, you become more right as your delta increases (buying options gives you positive gamma).

Right now, we've established two model portfolios-- sizes of which are based off the needs of my subscribers. I have yet to take an option buying position (other than QID puts)-- but I plan to. When you're running an options portfolio, I feel that it's best to establish a "base" with indicies and other liquid options, where you make money within a particular range. Once that is established, then start taking shots at those option buys-- the theta you have from your "base" options will help subsidize the trading chop that may occur during the course of the next two months.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/