Generally speaking, options are not part of a 'buy and hold' strategy. By their very nature, options are used for trading as they have a finite horizon (to expiry). Thus, you shouldn't trade options without monitoring the position actively.
Another strategy is to use options to enhance investment earnings, especially in a buy and hold strategy with a volatile stock (e.g., TSLA). Again, the position must be monitored.
Given TSLA is trading ~$28.00, if it rises to ~$32.00 then, as expiration approaches, the option will become close to its intrinsic value (market price less strike price). However, the stock must be rising and the option one month out will have the same intrinsic value plus a time value. With a volatile stock, such as TSLA, usually you can raise the strike price by $1.00 and sell and new position one month out for more than it costs to close the existing position. Thus, you don't limit your upside, you raise it and push it out. However, sometimes it can cost you more to close the position and open a new position at a higher strike price.
As noted above, this scenario occurs when you stop trading the position and let the in-the-money expiration occur. This can happen when you require liquidity and don't have time to push the option out.
Absolutely. The funny thing about insurance is that, when you lose one hand, you win on the insurance. Conversely, when you win on one hand, you lose on the insurance.
Another strategy is to use options to enhance investment earnings, especially in a buy and hold strategy with a volatile stock (e.g., TSLA). Again, the position must be monitored.
Given TSLA is trading ~$28.00, if it rises to ~$32.00 then, as expiration approaches, the option will become close to its intrinsic value (market price less strike price). However, the stock must be rising and the option one month out will have the same intrinsic value plus a time value. With a volatile stock, such as TSLA, usually you can raise the strike price by $1.00 and sell and new position one month out for more than it costs to close the existing position. Thus, you don't limit your upside, you raise it and push it out. However, sometimes it can cost you more to close the position and open a new position at a higher strike price.
As noted above, this scenario occurs when you stop trading the position and let the in-the-money expiration occur. This can happen when you require liquidity and don't have time to push the option out.
Absolutely. The funny thing about insurance is that, when you lose one hand, you win on the insurance. Conversely, when you win on one hand, you lose on the insurance.
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