Swing Trading Options

In Optionslearn, we only Buy Call Options or Buy Put Options. 

We are also going to use a Swing Trading System that is directional in nature. We use Swing Trading Templates to give us trading directions. If it signals Up, we Buy Calls. If it signals Down, we Buy Puts.

Now, only ITM Options have intrinsic value (see Options Premium 2):

1. ITM options  = intrinsic value   + extrinsic value
2. ATM options =   0                     + extrinsic value
3. OTM options =  0                     + extrinsic value

Because of Intrinsic Value, options prices move almost dollar-for-dollar with the Underlying Stock when the option is In-The-Money:
• We want this dollar-for-dollar movement.
• As such, we seek to buy options that are at least one-step “In-the-Money.”
• Look for delta of 0.75 (and above) to get this dollar-for-dollar movement

So in summary, we buy deep-in-the-money options:
a. To avoid volatility
b. For the intrinsic value
c. To get dollar-for-dollar movement
d. Find delta of 0.75 to 0.80
e. that have longer expiration dates (more than one month ... to avoid time decay)

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