why don't most people do this

[newwurldmn]

why wouldn't everyone buy a deep itm option and keep the rest in cash. for example right now apple is at 134.16 buy a 120 strike that expires in a month that is trading at 14. keep the other 12000 in cash. if apple shoots up u have all the upside and if it crashes tomorrow to 120 u might still have 3 dollars premium as the farther down it goes the the more the delta decreases, and the max loss is 1400.
yes, i know i am not the genius that thought of this first. but this is fairly simple and i don't see a downside to this. can someone tell me the drawbacks?
obviously this strategy is best to do when the bid ask on the option is not to wide.

as shown in ajacobsons post the option is closer to 15 dollars. So you are paying almost a dollar over the current price of apple ever month if you wanted to hold the same position.

the options pricing accounts for the cost of funds in the leverage opportunity. It also accounts for gamma risk (the fact that the option might be still worth three if the stock falls to 120).

there’s no free lunch.

 

[traider]

why wouldn't everyone buy a deep itm option and keep the rest in cash. for example right now apple is at 134.16 buy a 120 strike that expires in a month that is trading at 14. keep the other 12000 in cash. if apple shoots up u have all the upside and if it crashes tomorrow to 120 u might still have 3 dollars premium as the farther down it goes the the more the delta decreases, and the max loss is 1400.
yes, i know i am not the genius that thought of this first. but this is fairly simple and i don't see a downside to this. can someone tell me the drawbacks?
obviously this strategy is best to do when the bid ask on the option is not to wide.

because stonks can only go up

 

[happy trading]

If you're so sure it is going up then buy 2 x ATM calls. Risk is even less and 1 to 1 move with the stock.
Risk can be reduced much further. Fire up TOS and be creative.

thete

 

[happy trading]

as shown in ajacobsons post the option is closer to 15 dollars. So you are paying almost a dollar over the current price of apple ever month if you wanted to hold the same position.

the options pricing accounts for the cost of funds in the leverage opportunity. It also accounts for gamma risk (the fact that the option might be still worth three if the stock falls to 120).

there’s no free lunch.

more like 50 cents which isnt so bad

 

[newwurldmn]

more like 50 cents which isnt so bad

It’s still not free money. 50 cents * 12 is 6 dollars will cost you 5percent vs just buying aapl stock.

 

[smallfil]

Wide bid and ask spreads are normal if you are trading options. Buying deep in the money options make sense because your breakeven price is lower. You have a higher chance of making monies. Your stock just needs to go up or down a small amount before you start making monies. Take note, open interest is a consideration too when picking the strike price. You want the open interest as high as possible (200-300 is good, thousands even better) to make exiting your trade easier, especially, if you are wrong.

 

[ET180]

why wouldn't everyone buy a deep itm option and keep the rest in cash. for example right now apple is at 134.16 buy a 120 strike that expires in a month that is trading at 14. keep the other 12000 in cash. if apple shoots up u have all the upside and if it crashes tomorrow to 120 u might still have 3 dollars premium as the farther down it goes the the more the delta decreases, and the max loss is 1400.
yes, i know i am not the genius that thought of this first. but this is fairly simple and i don't see a downside to this. can someone tell me the drawbacks?
obviously this strategy is best to do when the bid ask on the option is not to wide.

Same as asking why doesn't everyone hold long OTM puts to hedge their long stock. Same risk / reward and tighter bid/ask on the OTM puts vs. ITM calls.

 

[Masil]

It is clear many people do it, but it is not that simple. The risk in still in the distance and can cut you off. The chances of success is higher anyways.

 

[happy trading]

It is clear many people do it, but it is not that simple. The risk in still in the distance and can cut you off. The chances of success is higher anyways.

can you please clarify what you mean?

 

[HappyDays]

thete

A tradeoff is inevitable, still preferable to the risk involved with a deep ITM call.