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The Illusion of Cheap Options: A Closer Look
In this report, we’re going to take a deep dive into the allure of cheap, short-dated options — and why they may not be as “cheap” as they seem.
As we discussed before, short-dated options are a fast-paced, high-stakes corner of the market that's been gaining serious traction lately.
Trading short-dated options is like sitting at a high-stakes poker table — fast, unpredictable, and thrilling. But instead of cards, you’re dealing with contracts that expire faster than your average milk carton.
Needless to say, it can get pretty exciting.
What Exactly Are Short-Dated Options?
Short-dated options are the sprinters of the trading world, expiring anywhere from 0 (meaning same day) to 4 days from now.
Unlike longer-term options (which can last 90 to 180 days), these contracts react dramatically to even the smallest price moves.
Their appeal? Speed and the potential for quick profits.
But the same thing that makes them exciting also makes them dangerous: there’s very little time for the trade to recover if things go south.
The Temptation of Low Prices
Picture this: you’re scrolling through your trading app and spot options priced under a dollar — maybe even as low as 30 cents.
Tempting, right? Like finding a bargain at a yard sale, you start thinking, “What if this turns into something huge?”
You’re not alone in that thought.
With the rise of retail trading and easier access to options, cheap, short-dated contracts have become incredibly popular.
But the low price tag isn’t the full story.
The Reality Behind Cheap Options
But this is where the plot thickens.
These options are cheap for a reason — they’re priced based almost entirely on the stock’s immediate movement and implied volatility.
Think of them like a slot machine:
| | • | | The buy-in is cheap. | | | • | | The potential jackpot is big. | | | • | | But… the odds are stacked against you. |
Unless the stock makes a dramatic move — and fast — these options are more likely to expire worthless than make you rich.
Understanding the Odds
Buying a short-dated option is making a highly specific bet: | | • | | The stock must move in the right direction. | | | • | | The move has to be big enough to offset time decay. | | | • | | It all has to happen within just a few days — or even hours. |
It’s like trying to predict not just who will win a race, but how fast they’ll run and what lane they’ll be in. For the gamblers out there, it’s kind of like a parlay — everything has to go exactly right.
The odds? Let’s just say they’re not in your favor.
The Allure of Explosive Returns
Now, here’s the flip side…
If you get it right, these cheap options can skyrocket in value.
Just recently, I grabbed a short-term call around 10 AM because I spotted a breakout I liked. Within an hour, I was up over 150%.
I almost couldn’t believe how quickly the profit ratcheted up.
So don’t get me wrong — these options have their place. And if you catch them just right, there’s nothing in the entire stock market with so much potential in so little time.
If you’re expecting a major announcement or economic report, they let you take a position without a long-term commitment.
It’s like renting a sports car for a day instead of buying one — a thrill ride, but short-lived.
But if the move doesn’t come fast enough? You’re in trouble.
Why do Short Dated Options Lose So Much
It all comes down to time decay.
Since these contracts have so little time left, they’re already in the rapid decay stage.
It’s like watching ice cream melt on a hot summer day — your value can disappear in the blink of an eye.
This is where most traders go wrong. | | • | | It’s not that they have bad ideas about market direction. | | | • | | They just don’t realize how fast they have to be right. |
And even when they do catch they move… when do they exit?
It’s easier said than done — I can promise you that.
The Takeaway: Know What You’re Getting Into
Before you get too crazy chasing cheap, short-dated options, remember:
A cheap option isn’t actually cheap. Everything is priced in — the risk, the time decay. Everything.
The question is: Can you get in and out fast enough to make it work?
— Nate Tucci
P.S. Chris Pulver has spent his career flipping this idea on its head.
That BRUTAL time decay we’ve talked about? It’s actually his biggest advantage.
In fact, he targets about $100 a day by letting those cheap options die on the vine — instead of betting on them.
Tap Here to see how it works
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