What is the alternative if the call has too much premium

Discussion in 'Options' started by emk662, Mar 4, 2007.

  1. emk662


    I like to buy some call options on a stock, but find the premium is too much. What are the alternatives strategies available?

  2. Buy high sell higher.
  3. buy the spread. This is the simplest of the many options you have if you are bullish on a stock. Other options, ratio or backspread, call calendar or diagonal.
  4. emk662


    can you give some examples?

    My opinon is that the spread can reduce the premium, but either give up the potential profit or does not have downside protection. Such as vertical spread.

    But the naked call does not give up potential profit and have downside protection.

  5. All options are priced correctly...so perhaps YOU have a specific example in mind. While the call option may seem high its probably due to higher volatility. Yes the spread limits your profit but if you think the stock will shoot the moon then pay the higher option price for the single. A call vertical is a defined risk play. You know up front the max reward/risk. If you have a ball park price you think the stock will go to then the vertical is the place to be.

    If on the other hand you think the volatility will go down...then sell the call vertical slightly OTM and reap any vol reward, very short term trade. OTM call butterfly is another way to capture some vol gains at very little cost. Many other ways to play volatility but you must decide what you want to risk...direction (delta) or volatility.

  6. Look at the various In the Money call strikes until you find a strike that has almost no (or very little) premium built into it.
    This usually occurs deep In the Money on most stocks, with the exception of stocks with "very high implied volatility."
    With those stocks, you sometimes can't avoid paying premium regardless how deep In the Money you get.
    If you do find an In the Money call strike with almost no or very little premium, the price action of the option will act almost exactly like the stock.
  7. emk662


    I think the deep in the money calls requires much more capital to purchase than those at the money or out-of-the-money ones. I cannot take advantage in case the stock moves to my direction.

    Is there a creative way to construct a call that has low volatility-related premium and less capital?

    Thank you.
  8. emk662


    Also deep in-the-money calls risk much more capital than at-the-money or out-of-the-money calls.
  9. How about short put if you are bullish?
  10. A long call strategy as a method to get long in a declining market is generally inefficient. IV's get pumped on the break and then get destroyed on the bounce. You need to adapt your methods to fit unique market conditions. Often increasing dollar risk is ultimately less risky than not. How about scaling back and selling a put spread to finance a long call. You'll cut your gamma exposure and be long deltas. Since you're exposed on the downside (limited) you'll need to size your position accordingly. Think like a bettor!!!
    #10     Mar 6, 2007