How Deep-in-the-Money Options Offer a Solid Alternative to Stocks

Comments (7)

  1. richard goodrick says:

    Thanks so much for your thorough, and easy to understand explanation of DITM calls.


  2. Joseph says:

    You say “Plus, you’re cutting your total risk in the trade by $5,455. The most you can ever lose when buying options is what you paid for them. In this case, you can’t lose more than $2,020.”
    This is only partly true. Yes, the amount of money that’s on the line is smaller; but on the other hand, there is a much greater chance that you will lose all your money when buying the option than buying the actual stock. This is because if the stock price drops below your strike price you lose your entire investment whereas when you buy the actual stock the only way you lose all your money is if the company’s share price goes down to zero, a much less likely scenario than the price falling below the strike price.


    Max Baer Reply:

    Excellent point, Joseph! Even deep-in-the-money options pose a high risk if a stock goes into an unexpected, yet temporary, free fall. If the option expires before the stock recovers, you could lose all your money on the position, whereas the underlying stock may well appreciate nicely after the expiration of the option, but too late for you to benefit from it.


  3. Dominic says:

    So I should find a DITM call with a high delta, right?

    As opposed to what? A DITM call with a low delta?

    (If your broker offers you a DITM call with a low delta you should find another brokerage.)


  4. 56 says:

    Deep in money have deep premiums in addition to another deep premium cost factor for options (time, and its your forgiving friend if you buy enough of it)

    . Less contracts for that $2000. What’s wrong with at the money/slightly out of the money. Lower premiums, more contracts, and time if you choose to pay for it.

    Delta of .6-7 isn’t as nice as .9 for sure but considering you can ramp up the number of contracts the $ buys and/or get more time I mean really the thing that matters is being proved right on strike+premium anytime before expiration.

    I would recommend the hell out of put options vs shorting. More gains, no obligations,no sneaky dividends. Time is against shorts anyways, not such a big swallow for a put.


  5. Sri says:

    How does one calculate delta?


  6. Jon says:

    Well, I guess you always have a risk of assignment….so how does it help other than accumulating the shares in case of PUT sell and in case of Call – it can be called away from you anytime costing you that capital


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