Secret 39 A LONG SHOT SECRET

For those players who like to play long shots, consider buying

expiring options. During the last week before expiration,

very-close-to-the-money options can make dramatic moves in

value within one or two days. Buying such options can generate

some real home runs.

The best options to buy here are index options, such as the

S&P 100 Index (OEX) and the S&P 500 Index (SPX), for they give

you the most bang for your buck in those last few days before

expiration.

The key to success in this strategy is to buy on weakness in

the option price. Try to buy options under 1 that are very close to

the strike price.

Be warned, you will incur a lot of losses, but just one big

move in the index price will give you a big jackpot. You may wish

to play it on paper for a while to see the results of these types of

play. Here, you are betting on chaos theory’s surprise volatility.

Many years ago I was watching IBM move in a 3 point trading

range each day as we approached expiration. The close-to-themoney

call would move from 1 down to 1/8 with 2 days before expiration.

Seeing this, I entered an order to purchase the call at 1/8

(.125). The order was filled during the day at 1/8. I, then, immediately

put in an order to sell the option at 1. The order was filled a

few hours later, giving us over a 700% gain, yet the option eventually

expired worthless. The lesson is that fast action is needed with

this strategy.

Now for the one that got away. Using this expiration strategy,

I bought some call options on the S&P 100 Index one week

before expiration at 3/8 (.38). Then with three days before expiration,

I had to make an unexpected business trip, so I closed out

the position at 3/4 (.75). At expiration the Index was 7 points

($700) in-the-money of the call option. If I would have held the

position, my gain would have been almost 2000%.

If you use this strategy, make sure to buy the options really

cheap—on weakness where there is still a fair chance the index

or stock price could move across the strike price into-the-money.

You need a lot of patience and tolerance for losses to play

this strategy, and there will be many months where you will not

find opportunities. However, if the game is played correctly and

you like long shots, this strategy can give you big rewards.

For those players who like to play long shots, consider buying

expiring options. During the last week before expiration,

very-close-to-the-money options can make dramatic moves in

value within one or two days. Buying such options can generate

some real home runs.

The best options to buy here are index options, such as the

S&P 100 Index (OEX) and the S&P 500 Index (SPX), for they give

you the most bang for your buck in those last few days before

expiration.

The key to success in this strategy is to buy on weakness in

the option price. Try to buy options under 1 that are very close to

the strike price.

Be warned, you will incur a lot of losses, but just one big

move in the index price will give you a big jackpot. You may wish

to play it on paper for a while to see the results of these types of

play. Here, you are betting on chaos theory’s surprise volatility.

Many years ago I was watching IBM move in a 3 point trading

range each day as we approached expiration. The close-to-themoney

call would move from 1 down to 1/8 with 2 days before expiration.

Seeing this, I entered an order to purchase the call at 1/8

(.125). The order was filled during the day at 1/8. I, then, immediately

put in an order to sell the option at 1. The order was filled a

few hours later, giving us over a 700% gain, yet the option eventually

expired worthless. The lesson is that fast action is needed with

this strategy.

Now for the one that got away. Using this expiration strategy,

I bought some call options on the S&P 100 Index one week

before expiration at 3/8 (.38). Then with three days before expiration,

I had to make an unexpected business trip, so I closed out

the position at 3/4 (.75). At expiration the Index was 7 points

($700) in-the-money of the call option. If I would have held the

position, my gain would have been almost 2000%.

If you use this strategy, make sure to buy the options really

cheap—on weakness where there is still a fair chance the index

or stock price could move across the strike price into-the-money.

You need a lot of patience and tolerance for losses to play

this strategy, and there will be many months where you will not

find opportunities. However, if the game is played correctly and

you like long shots, this strategy can give you big rewards.