While catching up on some reading this morning, I stumbled on this article from Marketwatch that had this unbelievable sentence regarding the stocks in the Dow Jones Wilshire 5000 Index: “Nearly half of all stocks in the index are now trading at less than $5, and 37% are under $3.”
Now ask yourself, why on earth would you spend a dime to buy a call on a stock priced at $3? At $3 a share, the STOCK itself is an option!! Why worry about an expiration date when you can buy the stock and never have an expiration date?
My point isn’t that you should go out and buy these stocks. They’re priced where they are because their very survival is questionable. My point is that you should not buy options on these things because the turnaround time — if a turnaround does indeed happen — may take a lot longer than the option’s time horizon.