long ITM call vs OTM call spread

J

J-Law

Any value doing a long call spread in AAPL where ur Long the Mar 470
call @17.05 vs short the 500 strike for 5.15? APPL @ 475.80 this writing.

My first hunch was to trade the ITM call on a pullback. this morning might have been nice. But, was thinking maybe these calls were possibly too rich
(can't quantify to confirm) but, then thought about offseting premium with a credit.

Most of the time people always trade long call spreads OTM.
Never thought to be ITM on the long strike before.

I'm sure there is a drawback somewhere besides limited upside.

Thanks in advance.

J-Law
 
Quote from J-Law:

Any value doing a long call spread in AAPL where ur Long the Mar 470
call @17.05 vs short the 500 strike for 5.15? APPL @ 475.80 this writing.

My first hunch was to trade the ITM call on a pullback. this morning might have been nice. But, was thinking maybe these calls were possibly too rich
(can't quantify to confirm) but, then thought about offseting premium with a credit.

Most of the time people always trade long call spreads OTM.
Never thought to be ITM on the long strike before.

I'm sure there is a drawback somewhere besides limited upside.

Thanks in advance.

J-Law
More...



are you just purely trading this? like is this an intra day sort of thing where you're looking to ride AAPL while cutting down on the cost to do it? IF so why not buy the Feb 460 call, it has a delta of 85 compared to the Mar 470 that only has a delta of 59. The Feb call is about 1800 bucks.

I'm not sure about your account size or anything like that, but if you are just purely trading it, I wouldn't even worry about making it into a spread. either way you're likely going to shell out over a grand to hold it.
 
Thanks. Was trying to swing trade over a few days & wanted to do something ITM with high delta & low theta. Figured AAPL or even CAT will consolidate or dip & would be an opp to get in.

Also, was trying to get a handle on how much I would be paying up for them cause of high IV or whatever.
 
Quote from J-Law:

Thanks. Was trying to swing trade over a few days & wanted to do something ITM with high delta & low theta. Figured AAPL or even CAT will consolidate or dip & would be an opp to get in.

Also, was trying to get a handle on how much I would be paying up for them cause of high IV or whatever.
More...

I've been waiting and waiting for a dip in apple to get long!! it hasn't come, but I keep assuming that it will come as soon as I get long :)
haha

Basically, what I've been doing instead of waiting for that dip is buying intraday, usually sometime around 10 or 11 because it seems as though since earnings, its been trading in trend, ie: it's picked a direction and pushed that way until close. I've just been buying calls with a high beta (80+) and riding that till late afternoon. That has seemed to work well for me, and possibly for you.
 
For instance, look at AAPL's chart today. Around 11:3- it bottomed, and rose all day long. I got in a little early but I picked up 3 Feb 460 weeklies for 11.90. I got into them a little early but was confident they would resume their uptrend. Eventually they did and closed at 16.65. I obviously was out a little bit earlier than that, but you see my point. Once you look at the daily you might get a better idea of what I mean.
 
Quote from J-Law:

Do they trade the weekly's on IB?
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I'm not sure as I do not use IB but they are sophisticated enough where my assumption would be yes. All brokerage firms I'm aware of offer weeklies.

Note: If you do not see them displayed it may be your options chain display settings. For instance mine by default only shows the monthly. I had to turn on weeklies to see them.

Remember the weeklies have a much fast decay because they are so short. But are also much cheaper in price, but may not be as liquid as the monthlies.
 
Quote from J-Law:

Thanks. Was trying to swing trade over a few days & wanted to do something ITM with high delta & low theta. Figured AAPL or even CAT will consolidate or dip & would be an opp to get in.

Also, was trying to get a handle on how much I would be paying up for them cause of high IV or whatever.
More...
With verticals, it's all a choice about R/R, probability, and degree of bullishness. Lower cost OTM spread has lower probability of higher profit (aggessive) whereas ITM spread is the opposite (higher prob of smaller profit and conservative).

You use a vertical when mildly bullish versus the outright call when strongly bullish. The sale of premium is a hedge to reduce risk but it's a drag on performance. If you're short term trading, you're better off with a short term high delta long call (no spread).

In the case of AAPL, since it's post EA, IV is in the low end of its range so you're not paying up more than normal.
 
Was looking at AAPL long term chart. Stock has had a 115 pt. run.
Probably going to $500. But, there should be some sideways movement at some point if not a dip.
 
Quote from J-Law:

Was looking at AAPL long term chart. Stock has had a 115 pt. run.
Probably going to $500. But, there should be some sideways movement at some point if not a dip.
More...

I would think a dip. Then again, I've been waiting for a dip in the overall market and we haven't gotten it..yet. It'll come if you're patient. there's always a dip. or always a top.
 
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