Part of the problem with options trading is that (to the unininformed retail investor) your position can sometimes look profitable/good until all of a sudden it isn’t.
One of the most common I’ve heard from regretful friends is a variation on your scenario #1 where they buy a deep OTM call a few weeks out right after a recent pop in the underlying. Maybe the rally continues a bit, underlying goes up in price, they’re clapping themselves on the back. A few weeks pass and the price has gone up a bit more, but the options position is already blown up.
“I don’t get it... the stock price went up and everything but I still lost all my money on options.”
Worse still, due to the leverage offered by options, the losses can sometimes be real bad.
In the scenarios painted here and by the parent (buying puts or calls), the losses are capped at whatever was outlaid in premium. The leverage is entirely expose to the upside potential.
I think he means that deep OTM is cheaper and you can buy more of it compared to what you would with ITM or near strike options.
So yes if you think Tesla is going to be $1000 in a few weeks and it moves towards that direction but not enough to make up for other greeks, IV, theta, etc, then yeah it could happen.
One of the most common I’ve heard from regretful friends is a variation on your scenario #1 where they buy a deep OTM call a few weeks out right after a recent pop in the underlying. Maybe the rally continues a bit, underlying goes up in price, they’re clapping themselves on the back. A few weeks pass and the price has gone up a bit more, but the options position is already blown up.
“I don’t get it... the stock price went up and everything but I still lost all my money on options.”
Worse still, due to the leverage offered by options, the losses can sometimes be real bad.