Another New High Possible, And Some Option Theory

I bailed on most of those 129 puts yesterday. Then saw the up spike to 1298.25 right to the tick and the sharp reversal and I thought we were off to the races.

Suddenly I was dis-heartened that I didn't have more. Until I saw what happened in the overnight session, which was nothing.

No impulsive decline. Just a dip. Then a rally. Back to the highs we go . . . eventually.

It could be today. It could be next week. It's a little too middle-of-the-page for me here.

I'll wait until the highs are breached or the tree gets shaken. I need more of an extreme to have an edge.

That especially goes with options, which are best purchased at the extremes, counter trend, when the premium gets squeezed out due to fear.

That is when you must calmly step in and be a buyer (in accordance with your own particular risk parameters). At that point, you're a wholesaler. Buying at a discount.

You want to avoid paying retail at all costs. You need margins to stay alive in this business. Just like any other one.

Also, I like to trade gamma. You might notice that I consistently buy SPY options just out of the money. That's where the highest gamma lies.

Gamma is the speed of the delta. The delta is the rate of change.

Think of gamma as the boost in a turbocharger. You start with a very slight lag because of the slightly lower delta, but then the boost kicks in and the acceleration happens.

Higher gamma means slightly less premium destruction when you're wrong, too.

SPY options move like molasses though. They are nothing like OEX options, which I much prefer. But the OEX needs a little more volatility than we've had lately from this run away bull.

So I'm stuck with the SPY until conditions change.