Trading options can improve your return enormously if your view is even at least partially correct. This is because the price of an option is calculated out of a number of different inputs*. For me, the three most important variables are:
TIME – the longer your option lasts, the more expensive it is (this concept is recognised as theta).
DISTANCE FROM THE MARKET – an option with a strike price 100 points away from the market will be more expensive, ceteris paribus, than an option with a strike price 300 points away from the market. The market is more likely to move 100 points than it is to move 300 points, and the change in value of your option will be greater for each 1 point move (delta).
Volatility is crucial when trading options
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