Is leveraging an account with deep ITM calls superior to using cash from your broker?

[lawrence-lugar]

you call yourself a guru of options? How about making 500% instead of 150% ???
Example for the braindead:

with the calls you get much bigger returns

I agree, Pekelo -- bigger is good. Size matters~

 

[tradelosses]

so many things wrong with this thread. unless you have interative broker's low marging rates, it' almost always better to buy deep in the money calls to double your delta than pay huge fees

 

[tradelosses]

IMO ........ No.

CONS

• bid/ask spread
• volume

PROS

• Can't think of any

it's a myth that low volume options are not liquid. I can get filled perfectly on low trade option even for very small and obscure etfs (20 contracts or more)

 

[OptionGuru]

And you call yourself a guru of options? How about making 500% instead of 150% in the case of the stock doubling??? Example for the braindead:

Read the OP. Your example isn't what this thread is about.

 

[Daal]

And you call yourself a guru of options? How about making 500% instead of 150% in the case of the stock doubling??? Example for the braindead:

SRI at 18.3, the 15 Oct calls are $3.3 or more. If the stock doubles in a very short time, the margined stock position only made 150%, but the 3.3 calls suddenly are worth 21+ bucks, a 500+% return.

To answer the OP's questions, using ITM calls you have to guess the time frame of the price increase correctly. With stocks, you can afford to wait a long time. But with the calls you get much bigger returns...

I dont think these calls are deep ITM enough, what I'm referring to are calls that are so deep ITM they are almost like buying the stock outright. Delta is super high

 

[Pekelo]

I dont think these calls are deep ITM enough, what I'm referring to are calls that are so deep ITM they are almost like buying the stock outright. Delta is super high

What is the point of buying even more ITM? As long as the timevalue is minimal, you are good with those calls. The only point of going even more deep is if you expect a drop (thus less % loss on the calls) but then you wouldn't buy a call in the first place. It would cost you way more money, indeed almost twice as much to get a much smaller return. Just doesn't make sense at all to go deeper.

But let's run the example: SRI at $18.3, you buy not the 15, but the 12.5 strike for $5.80. The stock doubles quickly to 36, your 12.5 calls are worth $23.5 but your profit is only (23.5-5.8)/5.8=300% compared to the 500% with the 15 strike.

 

[Pekelo]

Read the OP. Your example isn't what this thread is about.

Well, for one he made a typo when he asked "Why not go with way OTM calls?" He obviously meant ITM not OTM. That is what the title refers to too.

The obvious answer is that TIME works AGAINST such a position, eventually making it worthless at expiry. While during the same time the stock might doesn't move up, but at least keeps its value. (or loses a little, but not due to time).

But if I misunderstood it somehow, please don't hesitate to explain my confusion...

 

[Daal]

I made no such typo. I meant way OTM. Thats what people go for when they want levered exposure to an underlying and I wanted to antecipate people saying that was a better way to do it. I dont think it is as I just want to recreate margin leverage but in a different way

 

[killshottrader]

I am a big fan of long dated in the money calls for large cap stocks that I plan to hold for a time. Great technique for leveraging an IRA account.

 

[Daal]

What is the point of buying even more ITM? As long as the timevalue is minimal, you are good with those calls. The only point of going even more deep is if you expect a drop (thus less % loss on the calls)

Its not about expecting or not expecting, if the drop were to occur I think you would lose in some scenarios where my deep ITM call would not lose as much (nor it would the outright margin levered postion) so essentially it would be a different type of position as an margined outright long