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Originally Posted by magwell
Explain as simple as you can, how a person should play that ..........  , |
For simplicity, I will call the option premium “rent.”
If you think the S&P will advance in price, one would buy a “call” option.
If you think the S&P will decline in price, one would buy a “put” option.
On Friday, with only a few hours to expiration (dispossessed), the rent is cheap. An “at the money” call could appreciate 10x if the S&P advanced 15 points or so. A put would yield a similar return if the S&P fell 15 points.
The huge gains would happen if one bought an “out of the money” option that turned into an “in the money” option.
Of course, this was not meant as educational. Much more can be found by Googling put and call options.
