why don't most people do this

Discussion in 'Options' started by happy trading, Apr 17, 2021.

  1. 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.
     
    Last edited: Apr 17, 2021
  2. .sigma

    .sigma

    so wide bid/asks on stock deter you... but not wide bid/asks on deep ITM strikes?
     
    tayte likes this.
  3. sorry for not being clear. i only meant wide bid ask on options
     
  4. i now edited the original post.
    thanks
     
    .sigma likes this.
  5. ajacobson

    ajacobson

    AAPL210521C00120000 2021-04-16 3:59PM EDT 120.00 14.90 14.95 15.10 -0.40 -2.61% 817 21,548 33.89%

    It's a perfectly viable idea, but the devil is in the details. The last offer in the option was $15.10, BUT THESE ARE ALL STALE QUOTES. It also goes x $.205 in May. The deeps generally quote $.10 to .20 wide, but it's reasonably possible to fill midpoint as it trades all 16 venues.
     
    .sigma likes this.
  6. hi thanks for joining. how ho i know how many venues a stock is trading on?
     
  7. ajacobson

    ajacobson

    With dark liquidity in stocks - who knows. I would guess at least 20.
     
  8. 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.
     
  9. .sigma

    .sigma

    There’s so much happiness in this thread :)
     
    ironchef likes this.
  10. tayte

    tayte

    Only time the bid/offer spreads are narrow: traps.
     
    #10     Apr 18, 2021