I read about an options strategy, where instead of buying the stock, (it has to be one you have researched and believe in), you buy a ditm leap on the stock with a delta of 100. The idea is that say the stock is 20, and the leap costs 12.00. Once you reach break even, every dollar increase in the stocks price gives you a 20/12*1.00 increase in the price of the option so you get a much better ROI. I don’t know if this is a good strategy, or if it is easy to find situations like this. I stopped trading options 2 years ago because I have a full time job, and also, due to a disappointing trade. I tried thinkorswim, and I am out of practice using it. I used to use it to do my research. Thoughts?
It works not for DITM, but for ATM or even OTM, IMO. I just quickly analysed the ATM case. But waiting till expiration is not recommended... B/c then it has shrunken to the normal outcome... due to time-/value-decay... Hmm. due to time-decay a LongOption every day loses value, so hard to believe it can be a good strategy. But I could be wrong. Maybe others can tell more...
So you think you can predict the movement of a stock by "researching" and "believing". Why don't you start by testing that, and letting us know how it goes? The strategy that you wrap around it afterwards is effectively immaterial.
Don't you think people can. First, stocks tend to go up more than they go down. Look at the stock market now versus 1970. So the odds favor you. Then you can look at things like ROE, P/S, P/E, earnings growth, sales growth, debt, and technicals, like relative strength, moving averages, RSI, the business they are in, etc. It's certainly not a guarantee, but maybe you can be right 2/3 of the time.
A DITM call with a delta of 100 isn’t going to have time decay. There’s no extrinsic value to decay. It’s just a lower cost way of owning a stock with less risk if the stock really drops. Pay $1200 for a stock rather than $2000 but the $$ profit/loss will be the same while the % ROI will be more volatile. If you’re a poor stock picker this won’t turn your losses into profits. I did this quite often but as a lower cost way of doing a covered call.
This isn't about "people"; this is about you. Nor is it about some random degree of growth, or you'd stick your money into T-bills, collect a positive return, and be happy. The question is, can you pick a stock that will beat the market with acceptable volatility, define exits at desired profit/max acceptable loss, and take the heat when it goes down - as it inevitably will at some point? Also... why would you pay the (relatively large) spread on a DITM option instead of just buying the stock outright? Given the margin you typically get on any decent stock, the cost will be about the same, the spread will be minimal, and you'll be getting dividends - something a DITM call won't give you.
Using some model data I did some further analysis and I think I just found another strategy based on the original idea in the OP, but which now looks even phantastic (incredible, unbelievable, too-good-to-be-true) if it only can be replicated also in the real world! But it should be possible, IMO, as one just needs to find the right stock... Need to do some more tests for confirmation... If true, then this finding could mean the end of trading as we know it... I better should be careful with this explosive finding....
Good luck with that. I'll share my experience from some years back. I was right more than 90% of the time picking equities, studying financials, assessing the business in every direction - I even called suppliers and often surreptitiously validated movement through their supply chains. The vast majority of my picks were successful and made great money. A small percentage were absolute disasters. There was one that closed around $30 and then got halted for news pending after the bell. The CEO had resigned, the CFO was missing and the stock opened a week later around $4. These were not dot coms or even tech companies, more like grocery stores and tangible goods companies with low PEs and boring businesses. In the end some of them lied and there was no way to discern that from the outside. The auditors had signed off on everything but in some cases sales, revenue and other aspects of the business were simply fabricated. My losses on that small percentage often wiped out gains from the winners.
it's not easy to find these sweet deals, and there's a bigger risk of losing money, so I think it is needed to be careful, especially if balancing trading with a full-time job.