why don't most people do this

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

  1. newwurldmn

    newwurldmn

    as shown in ajacobsons post the option is closer to 15 dollars. So you are paying almost a dollar over the current price of apple ever month if you wanted to hold the same position.

    the options pricing accounts for the cost of funds in the leverage opportunity. It also accounts for gamma risk (the fact that the option might be still worth three if the stock falls to 120).

    there’s no free lunch.
     
    #11     Apr 18, 2021
    longandshort and nbbo like this.
  2. traider

    traider

    because stonks can only go up
     
    #12     Apr 18, 2021
    .sigma likes this.
  3. thete
     
    #13     Apr 18, 2021
  4. more like 50 cents which isnt so bad
     
    #14     Apr 18, 2021
  5. newwurldmn

    newwurldmn

    It’s still not free money. 50 cents * 12 is 6 dollars will cost you 5percent vs just buying aapl stock.
     
    #15     Apr 18, 2021
  6. smallfil

    smallfil

    Wide bid and ask spreads are normal if you are trading options. Buying deep in the money options make sense because your breakeven price is lower. You have a higher chance of making monies. Your stock just needs to go up or down a small amount before you start making monies. Take note, open interest is a consideration too when picking the strike price. You want the open interest as high as possible (200-300 is good, thousands even better) to make exiting your trade easier, especially, if you are wrong.
     
    #16     Apr 18, 2021
    MACD likes this.
  7. ET180

    ET180

    Same as asking why doesn't everyone hold long OTM puts to hedge their long stock. Same risk / reward and tighter bid/ask on the OTM puts vs. ITM calls.
     
    #17     Apr 18, 2021
  8. Masil

    Masil

    It is clear many people do it, but it is not that simple. The risk in still in the distance and can cut you off. The chances of success is higher anyways.
     
    #18     Apr 18, 2021
  9. can you please clarify what you mean?
     
    #19     Apr 18, 2021
  10. A tradeoff is inevitable, still preferable to the risk involved with a deep ITM call.
     
    #20     Apr 18, 2021