This article was originally published in The Option Strategist Newsletter Volume 13, No. 3 on February 12, 2004.
One of the most tantalizing, yet dangerous, items in all of trading is the expensive option. From an elementary viewpoint, one would like to sell the option and collect the time value premium decay as it wastes away to nothing. But, more often than not, the options were expensive for a reason, so the option seller suddenly finds himself fighting the trend of a volatile movement by the underlying. In this article, we're going to discuss a few of the things to look for and then suggest a strategy that might be a "middle ground" where a skew is also involved with the expensive option (which it often is).