Options Jive

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Buying Options & Managing Profits

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

At tastytrade, we rarely talk about buying options naked as a directional strategy. This is because the strategy requires that the underlying market not only move in the direction we desire, but move by a large enough amount to make up for the premium paid on the option.

When implied volatility is low and we would prefer not to sell cheap options, we implement debit vertical spreads. This helps us to not necessarily lose if the stock does not move very far in our direction. The option we sold against the long option cuts off some upside potential, but helps us to profit if the stock only marginally moves in our direction.

Today’s Options Jive segment looks further into buying naked options and how managing profits in this strategy that we do not often use affects long-term success. We then go on to compare these results to the aforementioned debit vertical spread. Check out the results above.

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