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Track 'n Trade Futures End of Day Options
Under Priced Options
Video Transcript
In this Track 'n Trade Pro Options trading training video, I want to talk to you about buying under-priced Options. We want you to buy under-priced Options when you think you know where the price of the particular underlying commodity is headed.
Now, here's all you have to do to buy an under-priced Options. Look to buy Options that don't expire for at 30 to 60 days, or more. It's usually much easier to find under-priced Options when they have more time value remaining. As an Option approaches expiration, it's premium almost always falls in line with fair market value. This is especially true during the last two to three weeks, before expiration.
Remember: Many Options expire almost a full month before the underlying Futures contract. For this reason, it's difficult to find under-priced Options, which expire within 30 days. So, make sure that the Options have at least 30 days remaining, or a little more.
Now, remember, I want you to always remember to practice good money management. For instance, if you're wrong about the direction of the market, you might want to liquidate your Option, or your Options, if they lose half of their value.
Buying under-priced Options, gives you the advantage. It shifts the probabilities in your favor. When an Options premium equal to the fair market value, nobody has an advantage. But when you buy Options with a premium that is less than the fair value, you have a slight house advantage. Kind of like the casino would. It reduces time decay, because you're having to pay for far less time value. It limits your risk and reduces losses when you're wrong about the direction. Since the Option is already under-priced, if there is an adverse price move, the Option will lose less value than it would otherwise. It increases your profits when you're right about the direction. As the Options premium back in line with the fair of market value, this helps your position.
So, if you insist on predicting price direction, at least make sure that you buy under-priced Options to give yourself the advantage.