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Comment by anoncoward111 | Hacker News Reader

Multi leg options sound weird on paper but aren't too hard to understand when explained properly.

An option is a bet on the future price of a stock. If you think that Stock XYZ will go from $15 today to $20 next month, you can buy an option that will reflect your prediction.

A multi-leg option allows you to bet on the "magnitude" of a stock's price change, rather than the "direction".

For example: "Tesla reports earnings next month. They're either gonna be REALLY good, or REALLY bad. So let me buy a multi-leg option that predicts a 10% price jump either up or down". You'll make money whether Tesla goes up 10% or down 10%. You'll lose a ton of money if Tesla remains roughly the same price.

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> A multi-leg option allows you to bet on the "magnitude" of a stock's price change, rather than the "direction".

Or simply define risk/reward (spreads and the like). That's especially useful if you want to sell premium and not risk getting killed.

Actually, it doesn't work like that.

If a stock is volatile, as TSLA is, the out of money (OTM) options will take that into consideration and the premium for it will be very very high.

A OTM straddle options trade probably a very bad choice. Like you said, if TSLA don't make a big move, you will lose. Even if they do make a big move, you will still lose because you are opening a trade on both directions.

My personal opinion on options is this: 1. Find stocks that move 2. Buy in the motion options 3. Expiration at least 6 weeks away, prefer to be longer. If price move into your target, great, take profit early.

I mean, sure, I agree. I was merely describing a type of multi leg option.

The premium on a 10% move option wouldn't be as high as you think. There's a lot of risk/reward here.

You'll pay a really high premium if your prediction is 'i think it will go up 2% in the next 9 months" :)

That's just one approach. There's no right or wrong answer. You can also find stocks that you don't think will move at all, or that will only trade within a narrow channel and design calendar trades around it.

I suspect you meant to type "2. Buy in the money options"

Given the context, wouldn't 'out of the money' options make more sense? You win big if the price goes into the money.

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