might it ever happen where buying deep OTM calls will make you more money than ATM or ITM?

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IronFist

Let me clarify:

Is there ever a situation where buying DEEP OTM calls will make you more money than buying ATM or ITM calls for the same amount of money invested?

In other words if a stock is $3, and you buy $100 worth of $3 calls (let's say this gets you 1 call), will this ever be worth less than if you buy $100 worth of $20 calls (let's say this gets you 60 calls)?

If price rockets up to $1,000,000 per share, will the ATM calls constantly be worth more than the OTM calls?

What I'm trying to uncover is, if you have enough money to buy even one ITM call, and you're long term bullish, will this during every case be a better play than buying a lot of OTM calls, even though you're getting more calls?

Every simulation I have run on this (using ToS) seems to be that the answer is yes (ITM/ATM always better), but I want to ask you.

Are DEEP OTM calls just for people with a little money to play around with?
 
If you're just focused on single calls rather than the effects in different structures, think about the delta of these calls for a moment. If the ATM call is 50D and the FOTM is 5D, then the first will gain 0.50/share for each point while the latter gains 0.05/share.

Gamma is also highest ATM and tapers quickly as you move off the distro. So, ATM delta will gain a good-sized increment as it moves ITM - while that FOTM delta is likely to stay pretty close to what it was before the move.
 
IronFist said:
Let me clarify:

Is there ever a situation where buying DEEP OTM calls will make you more money than buying ATM or ITM calls for the same amount of money invested?

In other words if a stock is $3, and you buy $100 worth of $3 calls (let's say this gets you 1 call), will this ever be worth less than if you buy $100 worth of $20 calls (let's say this gets you 60 calls)?

If price rockets up to $1,000,000 per share, will the ATM calls constantly be worth more than the OTM calls?

What I'm trying to uncover is, if you have enough money to buy even one ITM call, and you're long term bullish, will this during every case be a better play than buying a lot of OTM calls, even though you're getting more calls?

Every simulation I have run on this (using ToS) seems to be that the answer is yes (ITM/ATM always better), but I want to ask you.

Are DEEP OTM calls just for people with a little money to play around with?
More...

yes. where a DEEP OTM earns because it has little time value and the ATM doesn't cover it's premium.

A small rally in the stock.
 
Don't little rallies not do much for deep OTMs?

Or are you saying a small boost in price will make an OTM option increase but NOT an ITM option?

Like if price is $4, and you have a $20 call, if price rallies to $5 probably your call won't change much. But the $4 call will?
 
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BlueWaterSailor said:
If you're just focused on single calls rather than the effects in different structures, think about the delta of these calls for a moment. If the ATM call is 50D and the FOTM is 5D, then the first will gain 0.50/share for each point while the latter gains 0.05/share.

Gamma is also highest ATM and tapers quickly as you move off the distro. So, ATM delta will gain a good-sized increment as it moves ITM - while that FOTM delta is likely to stay pretty close to what it was before the move.
More...

I'm focused on deep OTM calls vs ITM calls vs. stock outright for far dated expirys.

Based on my calculations, ITM calls are worth the most, potentially, past a certain price, in each circumstance.

Said separately, there is a price after which price rises beyond it that ITM calls will be worth more than everything else possible, even stock outright.
 
IronFist said:
I'm focused on deep OTM calls vs ITM calls vs. stock outright for far dated expirys.

Based on my calculations, ITM calls are worth the most, potentially, past a certain price, in each circumstance.

Said separately, there is a price after which price rises beyond it that ITM calls will be worth more than everything else possible, even stock outright.
More...

Perhaps you should recheck your calculations. The value of a call can't be higher than the value of its underlying; it will appreciate more slowly than the underlying until it reaches 100D - which already puts it behind the 8-ball - and also carries the cost that you've paid for it initially (a relatively high one since it was already ITM.)
 
IronFist said:
Let me clarify:

Is there ever a situation where buying DEEP OTM calls will make you more money than buying ATM or ITM calls for the same amount of money invested?

In other words if a stock is $3, and you buy $100 worth of $3 calls (let's say this gets you 1 call), will this ever be worth less than if you buy $100 worth of $20 calls (let's say this gets you 60 calls)?

If price rockets up to $1,000,000 per share, will the ATM calls constantly be worth more than the OTM calls?

What I'm trying to uncover is, if you have enough money to buy even one ITM call, and you're long term bullish, will this during every case be a better play than buying a lot of OTM calls, even though you're getting more calls?

Every simulation I have run on this (using ToS) seems to be that the answer is yes (ITM/ATM always better), but I want to ask you.

Are DEEP OTM calls just for people with a little money to play around with?
More...

OTM calls are lottery plays for those dreaming about the big score. No different from the Las Vegas gamblers coming to Las Vegas dreaming of winning big and owning the casino in the process. Dumb x 100 times and guaranteed to lose their monies. Sometimes, the gamblers will win one, most other times, they just lose their monies.
 
IronFist said:
In other words if a stock is $3, and you buy $100 worth of $3 calls (let's say this gets you 1 call), will this ever be worth less than if you buy $100 worth of $20 calls (let's say this gets you 60 calls)?

If price rockets up to $1,000,000 per share, will the ATM calls constantly be worth more than the OTM calls?
More...

Not an options player here but let's see how rusty I am. Lets say you (as postulated) are long one $3 call and sixty $20 calls. If the shares go to $100 at expiration, your first position will be worth $100x100x1 - $3x100x1 = $9700 while the second position will be worth $100x100x60 - $20x100x60 = $480,000.

In other words (and unless my grasp of options is way off/I've done the math wrong), yes, there's definitely a cross-over point where buying deep OTM calls will net you much more.
 
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