Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

2. Stay away from deep out-of-the-money options

The illusion is that deep out-of-the-money purchases give you a lot of leverage. In reality, they give you a lot of hope, encourage over-commitments, and generally offer little profit opportunity. Yes, they hit at times, but this is a game of probabilities, and the odds are certainly against you when buying deep out of the moneys. You have to be realistic. If the premium appears cheap, there's usually a reason. Of course, you could buy an August 900 soybean call in July when the beans are at 600 and hope for a crop failure. You could probably buy a lot of them because they'd be cheap, maybe just a few pennies or $100 each. Yet, it would be unlikely for beans to rise $3.00 per bushel in just three ...