Deep In The Money (DITM) Call Options with a Delta 1 (or very close): Why not always do this instead of buying the stock directly? There is the downside: 1) You own an option not stock, so no voting rights. 2) You likewise do not get dividends. 3) The contract price is too high (100x a position like BRK.A has rendered the number of options on them available as... none..) 4) If there are other perks (rare) in owning the stock, you don't get them. But are there any other downsides? Because the upside: 1) At delta 1, if the stock goes up 1$ your option goes up 1$ 2) If the stock drop below your strike price you've capped your loss 3) Since you are paying for an option, the price is going to be less than the stock itself: This translates to leverage. For example, AMZN 20-JAN-17 Call @ 270 is trading at 251 (AMZNA201727000.U) with underlying price at 518.01 (at time of this writing). This translate to a delta of 99.0990 and a leverage of 2.0452. Or basically, you can own the equivalent of two times of stock for the price of one and in this case pay very little premium for the benefit of doing so. (Or expend half the amount of cash to control the same amount of stock). As opposed to buying on margin, you don't have to worry about a margin call (or pay the interest rate). If the stock crashes to below 251$ your option becomes worthless (but this is the same as buying the stock at 518$ and watching it drop to below 251$.) For example: Buy Stock @ 518$, drops to 250$ = Paper Loss of 260$ Buy Option @ 251$, underlying drops to 250$ = Actual loss of 251$ However, since you only paid 251$, the difference (518-251) = 267$ could then be used to buy the stock at 250$ putting you at the same net position. Of course if it drops even further you're saved by the maximum loss. And if the underlying price goes up, you would profit at a 1:1 ratio (almost). (And so far, I haven't discussed any of the additional benefits one could have from this strategy, such as hedging, writing calls, or investing the saved cash risk-free) So then the question really comes down to: Why not always buy stock options instead of the underlying position (except for the reasons listed above).
People do it all the time. Main issue is bid/ask spreads. Also consider selling puts and buying calls ATM or vice versa.
Options are not marginable securities, while stock is. In a $5000 account you can: Buy $5000 worth of calls or: Buy $10,000 worth of stock or: Buy $5000 worth of puts or: Sell $7500 worth of stock.
Buy the stock, sell covered calls, alot safer. Even if your stock plummets, you can still sell covered calls, collect the dividend and sleep easier.
Not completely true. Short options are marginable. It's not difficult to replicate a long or short position with more leverage than reg t provides on the underlying. Hint: S = C - P
There is no free lunch. The option price pays for intrinsic and extrinsic value. When you buy an option, you will always pay a time premium (extrinsic value). The goal is to gain enough intrinsic value such that when the time premium is gone (at expiration), the intrinsic value has grown to more than the price paid for the option. If the stock goes nowhere, you'll lose money being long options whether they are in, at, or out of the money.
You're on the right track with this line of thinking OP, but you need to take it further than just simple deep ITM calls vs stock. Nobody who is successful at trading will help you very much, I guess I'm no different. I like to keep successful systems completely proprietary, selfish me right, but I can say that you're on the right track. Try to expand your thinking to including some ATM options as well, and mixing up the expiry dates of the ATM and ITM. There is something there so don't stop perusing it just because ITM calls to stock is a non starter.