Should Options be Bought?

The thing that people should ask themselves before they purchase an option is if they are interested in getting adequate movement from their choice of option in relation to the moves that occur in the stock market. There are a great number of people that do not comprehend that aspect about options. Many people assume they are simply able to purchase an option on the board and that it will move as long as the stock keeps on moving. However, this is not always so. Some people may already be familiar with this but lets say that a person purchases an option that is going to expire in a few weeks and the stock then begins to move upwards, however the option contract is does not gain any value. This is probably because the person did not purchase an option that has a big enough delta. This situation happens in the out of the money OTM options and those that are too near the expiration time. Many like to focus on these types of options given the fact that they are cheap when it comes to dollars. However, it will soon be seen that while they are cheap, they will not provide you with the outcome you were expecting for. It is better to concentrate on options that have a high association with the actual movement of the stock. For those that are stock investors and are interested in using options as a way to obtain more leverage and utilize a smaller amount of capital, you will be better off staying close to the options that have higher deltas as they will provide you with more for your dollars. The idea is for the option price to move, and the only way that can be assured is by having an option that has a high delta. Investors make mistakes with options when they purchase cheap and low delta. It is not possible to simply purchase an option that is old and think that it is going to move point for point with the stock. Options are not as simple as that. For those people that like to lay bets and that like to have some entertaining speculation play every once in awhile can do so, there is not anything wrong in doing so especially on the options that are cheaper and cross their fingers to see if they are able to grab a big one. There is nothing wrong with this as long as they are fully aware before starting what they are getting into and are aware of their chances at hitting it big, which are slim, and they also need to know that there is a possibility they will lose one hundred percent of their option investment.

A very good video explaining what is an option worth.