Options a Cheap Play for Next Move

by Mark Wolfinger | May 2, 2011 8:36 am

Options a Cheap Play for Next Move

The Sunday evening news came with a big sigh of relief for many Americans. Around the world, the importance of this event was noticed. One remaining question is how the Arab world is going to react.

Whether the world will be better off, or suffer additional consequences via retaliation, remains to be seen.

Sunday night, and futures are higher. The amazing stock market rally continues. Of course, we can return to business as usual, but if options trading[1] investors want to get involved and go after a pile of cash, this may present an opportunity.

The bullish wager is that euphoria is here and that the markets will continue to move steadily — and perhaps rapidly — higher. Implied volatility is low enough to make the purchase of inexpensive calls a realistic play. I abhor buying out-of-the-money calls, but every once in a while those investments reap huge rewards.

On the other hand, there’s a good case for the bears as well. For them, it’s easy to see any rally as the final blow-off that establishes a market top not to be seen again for years.

Put options aren’t as cheap as calls, but they are much less costly than they have been in a few years, and that’s good enough for speculators who believe this is the beginning of trouble and the end of the market recovery.

‘You pays yer money and you takes yer choice.’ (possibly a Mark Twain quote. So much is attributed to him, that I cannot be certain).

Follow Mark Wolfinger on his ‘Options for Rookies[2]‘ blog.

Endnotes:
  1. options trading: http://investorplace.com/options-trading/
  2. ‘Options for Rookies: http://blog.mdwoptions.com/

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