With the VIX so high is it too late to buy options now without overpaying for premiums.
Answers
676 points
RobSmith answered one year ago …
I think it is -- but that presents another opportunity: SELL PUT OPTIONS.
With the implied volatility being so high, the premiums on put options are enormous relative to their intrinsic value. So if you have some cheap stocks you were looking to go long anyway, buying at the money puts with expiration dates coming up in the near term (couple of weeks) would be a great way to :
1. Enter the position at a reduced cost basis
2. Generate income even if you didn't get put the stock
113 points
zinfool answered one year ago …
A high VIX 'can' raise option pricing. However, there is usually a fair value price within the option chain that would make sense. Here is what I did 10/24/2008 on Kinross Gold Corp. I wrote (sold) put options on the LEAP 2011 strike price $10 for about $4.30 (10 contracts) and received $4300. (minus fees) and then bought call options on the LEAP 2011 strike price $7.50 for the same price $4.30, (10 contracts), so I was able to get a free trade. The sold put contracts bought the same number of call contracts, and at a lower strike price on the calls. So I sold a low risk put, and bought an even lower risk (in the money) call option at no cost. My risk is this: Calls can go to zero, with no risk to me, they were free! The sold put options expose me to a total of $10,000. (10 contracts of 100 shares at strike price of $10.) The possible gain to me: Stock goes up and the sold put options go worthless, I keep the $4300. And the value of the call options can go up an unlimited amount. My risk to reward factor was $10,000. to about $30.000., or about 3 to 1 with a 65% chance of success! I went for it!
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160 points
Einstein answered one year ago …
If you are buying calls then the call options should be unbelievably expensive
If you are buying PUTS you will pay higher premiums
So it all depends what options you are looking for. I would not be buying PUTS on extreme Market down days
on small rally and you can kiss your premium good-buy.
