Anonymous asked in Computers & InternetInternetGoogle · 1 month ago

How far out would you make this call option?

Say you know for certain a blue chip company is about to come out with a groundbreaking technology or service in exactly 3 weeks. How far out would you buy a call option for it? Would you go a year out and sell the premium when things reach climax, or go 2 months out for a higher delta?

2 Answers

  • 1 month ago

    That is a nearly impossible question to answer. 

    I would start by seeing what analysts are saying about the company. If you know what is going to happen in three weeks the analysts who follow the company probably also know and have probably already made that information public. If that is true I probably would not buy any call options because the current price of the stock would already reflect the anticipated news.

    It might also depend on how quickly and in what quantity the new technology could be manufactured, marketed and delivered. I would also want to know if other companies are close to delivering a competing technology that might be as good or better.

    I would want to compare the implied volatility of the option contracts for different months and compare the implied volatility with the statistical (historical) volatility of the stock.

    If I had to make a recommendation based only on the information you gave I would probably go for the two month time frame to reduce the amount of cash I was putting at risk.  

  • 1 month ago

    Not a Computers & Internet category question.  Business & Finance might have that stuff.

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