itm options to replace the underlying

in your opinion what would be a good mix of buying an itm call to get a lot of the upside, but not going to deep, so that my downside is drastically reduced? and when trading this with liquid stocks what is the best expiration to do this with, a week out, 2 weeks out etc?

 

Forget ITM........Buy OTM......The debit is your risk.

 

Otm has high volatility, you pay vol premium

 

Stock at 100 sell 1 call at 100 buy 2 calls at 98 or whatever works so you are not paying any extrinsic value in the long options when you take the short away from it. Loss is capped at debit paid. So you have a delta 1 position with capped downside.
Shorter to expiry the lower your maximum loss will be so move it to where you feel comfortable.

 

Very interesting idea, I can certainly see the benefits of removing most of extrinsic without having to go deep ITM.

Do you have any resources or material to read more on this approach?

 

• Buying the ITM calls is pointless.
• It's better to buy OTM calls only. No credit or debit spreads.

 

why? all i want to do is try to mimic the stock with much less risk. but with otm you are right the dollar wise the risk is less, but it will not mimic the stock

 

Then perhaps it's best to buy the stock.

 

That is not the point of the thread, so please stop highjacking it.

The OP's desired theme of discussion is to find synthetic alternatives to buying the stock. OTM calls, while might have other qualities, do not achieve that. It is time to let it go and let the thread rail back to what the OP wanted to discuss.

 

On the call side due to intrinsic supply/demand from folks and funds selling OTM calls for income (aka covered call), there could be a small edge buying calls either outright or as spread where you long is at that strike - look generally 2-3% OTM. Best bang for the buck. This can be seen in the volaltility profile for calls where you would see a hockey stick like pattern, with the lows just a few percent above the market.

But again.. that doesnt guarantee that this is the best option to pick always.

If the underlying goes only slighly above the current price and the OTM call expires worthless, you would be better off buying DITM. But thats looking backwards - given we dont have the luxury of doing that, in case where you want to lean long delta, either the above or a just 1:1 spread around the money could be your best bets.