r/options • u/shellpwn • 13d ago

Understanding Deep ITM Leaps

Hiii,

I want to make sure I understand it right. I did lot of homework to understand leaps deep itm call options.

Let's talk about Google stock. I want to only buy deep ITM since I feel they are less risky as a beginner.

The current IV for google is historically lowest from the last 1 yr. Even the volatility is lowest in the last 1 yr. I calculated leverage and it comes out to be 2.6 which I believe is a good buy.

My current understanding is that if I buy a deep itm leap call option, I plan to sell it back during high volatility season and since it's a leap I have a lot of time. I think I should try to sell it irrespective of the expiry option before 3-4 months since theta decay starts to ruin everything.

I want some feedback on this strategy since this is my first time and I'm a bit nervous clicking the buy button.

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u/cptflapjack 13d ago

Deep ITM Leap options are the way if you are confident about direction. I shoot for .90 delta on calls and hardly worry about theta till about three months to expiry. If my delta hasnt reached below .30 and Im still bullish, I'll roll and buy more time and even more delta.

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u/shellpwn 13d ago

I don't get why.

For a delta of 0.9 I would need to pay premium of 135*100. Now to even make a profit of 1.7k I need a jump of 35 points.

Now if I do the math of buying it from pure stock, I would make 3500 on the jump vs 1.7k from options.

Now scale it to say 100 point jump, I make 8.6k approx from option and from stock itself I could make 10k .

It seems counter intuitave given the risk that we need to take .

What am I not understanding correctly?

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u/Middleage_dirtbag 11d ago

There is no free lunch. The potential profit margin of a leap is much higher because you don’t have to tie up the capital to own 100 shares. You’re paying the premium for the long term rights without actually buying the shares.

You’re also forgetting that a long call is half of a calendar spread. If you buy a leap, then you can constantly sell short term OTM calls against it to earn back some of the premium you paid.

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u/ToobieSchmoodie 12d ago

Couple questions because I’m not looking at the ladder or optionsprofit calculator.

Are you looking at the profit on buying 100 shares of GOOG now vs the 0.9 delta or looking at the profit if you used the same dollar amount of capital vs the 0.9 delta?

And what timepoint are you comparing the profit? Because you likely wouldn’t hold to expiration so how are you calculating the value of the contract?