For options, if the current price is 150% above the strike price, what is best : cash or sell to buy?

Answer 1

Whether to buy, sell or write an option really depends upon the implied volatilty of the price you pay (think bid or ask, depending on if your position).

Remember, an option has three components - time, strike and implied volatility. You know time and strike of the top of your head- those are easy. Implied volatility, you back into using the Black Scholes model. If the implied volatilty is too high, then the market is saying the option is cheap and that it thinks that the option quite likely will be in the money. If the implied volatility is low, then the market is saying that it doubts that the volatility will be high enough to push the option into the money before its expiry.

The key to knowing whether to buy, sell or write an option is to find the mispriced options - buying calls on "cheap" low implied volatity calls when there is a good chance that the volatility is going to be high in the future and visa versa.

Answer 2

depends if you have a put or a call