Definition of "Deep In the Money": An option is said to be "deep in the money" if it is in the money by more than $10. Of course, we can’t be everywhere at the same time, so the real key to building wealth is passive income sources. since its inception—I still only trade about ten minutes a day. But did you know that it’s... Have you been watching EV stocks explode higher these last few months? It seems like guaranteed money. Even though the spread does not outperform a naked call directly, it does once you add the risk associated with this trade back into the risk-to-reward profile. The August 57.50 call is priced slightly above the July contracts and they have $0.15 more time value. Selling options is always a risk that many traders don’t feel comfortable taking when they start trading them in the markets. Now, I want to use it as an opportunity to teach you about one of my favorite strategies. Selling deep in-the-money covered calls. He also writes financial columns for both US and International publications along … Now it’s time to get out there and turn yourself into the casino – once and for all! Note: To maintain a constant risk of approximately $1,000 the size was increased to 10 contracts. When a trader buys a stock, they have time on their side and only have to pick the correct direction. Let’s assume this is a trade you want to place on AAPL, or better known as, Apple. You have a price target on AAPL of $270 ( or lower ) in the next month based on a technical analysis of the stock chart. Of course, we can’t be everywhere at the same time, so the real key to building wealth is passive income sources. Unlimited losses (more so than naked puts), The Complete Guide To Creating A Trading Journal, On December 7, 2020, the Federal Trade Commission filed Federal Trade Commission v. RagingBull.com, et al., Case No. With the proper education and guidance, this is a fear that is shortly overcome. It’s filled with crazy opportunities if you know where to look. Just wondering if I'm missing anything. The max profit would be $1,900 and capital required would only be $4,100. Here’s how the DITM covered call strategy works – let’s take Cisco (Nasdaq: CSCO), for example: You would buy Cisco at current levels of $17. This is the general answer to all questions when you ask someone what to do when you expect the stock to go lower. Heck, my trading strategy virtually runs on autopilot, there are days, like yesterday, where I don’t even have to check the market or look at my portfolio. Selling Deep In The Money Calls Example. An edge in the markets – The pros have a trading plan that works! (For equity traders it’s the only choice they have!). The Deep ITM approach This approach involves finding situations when deep ITM calls options have very high implied volatilities (IV), and hence excessive time premium. Secondly, deep in the money call options, are a great way to trade stocks because they give you super leverage up to 20 times for little or no cost, yet with less risk than trading options outright. Before we begin… Did you know that most traders are always trying to score big… driven by the burning desire to hit it big. This is why it’s the strategy at Options Profit Planner to focus on short options strategies and see get those house odds put into our favor. Finding deep in the money covered calls with http://www.borntosell.com is easy. Any investment is at your own risk. No. This is mostly true. You can select from a variety of different strategies. To help me sleep nights, I turn to history. Stock is trading at 16.91 with $1 increment strikes so any option with a strike of 15 or less would be deep in the money. You’re betting for a specific outcome with odds of winning a mere 25% to 40%! large amount of intrinsic value), deep in the money calls are one of the most popular kinds of covered calls to sell. And while myOptions Profit Planner premium service has not seen a losing tradesince its inception—I still only trade about ten minutes a day. And if you need a trading partner, someone to navigate you, then consider signing up and becoming a paid-up member of my Options Profit Planner service. Selling options is always a risk that many traders don’t feel comfortable taking when they start trading them in the markets. Deep ITM Bear Call Spread Example Assuming QQQ is trading at $63 and its May $60 strike price call options are trading at $3.06 and $55 strike price call options are trading at $7.94. The near month 1400 strike still represents the short side of the trade, … Now, this is where things start to get kicked up a notch and get interesting. Must be right on time, direction and movement before options expire. That’s insanity, literally! The definition of insanity:  The process of doing the same thing over again and expecting a different result. So, "deep in the money" call options would be calls where the strike price is at least $10 less than the price of the underlying stock. Do you know what the major difference is between traders who live a good life and those that struggle month to month? Because 90% of traders who buy options without having an edge lose money. They are addicted to the thrill of the game as they continue to look for that next explosive trade. By selling an ITM option, you will collect more premium but also increase your chances of being called away. However, buying deep ITM options cost less than the stock, allowing you to either leverage up or retain cash for other investments (or to just earn interest). Instead of selling a standard credit call spread, let’s take a look at what happens when we sell a deep in-the-money (ITM) call spread. Because of their relative safety (i.e. For a more comprehensive breakdown of the different strategies, Profit on trade at target $250: $3,435.00, Profit on this trade at $270 is $1,365 at expiration. A very common strategy when a trader is going lower is to buy a put option. Put Options Explained: What to Know to Get Started W hile long-term stock ownership can…, Take Advantage of the Christmas Stock Market The stock market is open Monday through Friday…. Deep ITM Bear Call Spread Example Assuming QQQ is trading at $63 and its May $60 strike price call options are trading at $3.06 and $55 strike price call options are trading at $7.94. ASSIGNMENT WHEN SELLING A NAKED PUT. Even though the spread does not outperform a naked call directly, it does once you add the risk associated with this trade back into the risk-to-reward profile. Since selling calls is a bearish strategy, a trader needs to be absolutely positive that the stock is going to decrease over time. This position gives the best of both worlds with the added benefits of removing the risk associated with naked calls. Here is an example payout diagram from a long put option at expiration. Note: To maintain a constant risk of approximately $1,000 the size was increased to 10 contracts. Unlimited losses (more so than naked puts). I've been analyzing several strategies, and up to this point, I've only found one that seems to fit my risk/reward profile. ITM $16 Put Premium received = $1.58 ... Let stock be assigned, potentially sell covered calls against it Roll the option out (new outlook on stock should match strategy) Define risk from the beginning by creating a spread Position Management . I know I have been. What does "selling deep in the money" mean? If a trader buys options they need to have. Ok so now we can break these down and see the pros and cons of each. The most recent market crash was in March 2009, but the price of XOM Stock actually crashed in the October 2008 market crash. Buy To Open 1 contract of May $60 Call at $3.06 Save my name, email, and website in this browser for the next time I comment. You’re betting for a specific outcome … For more information, visit the Temporary Receiver’s web site here. And if you need a trading partner, someone to navigate you, then consider signing up and becoming a paid-up member of my Options Profit Planner service. Before we begin… Did you know that most traders are always trying to score big… driven by the burning desire to hit it big. So if a stock is selling for $25, a $20 call would be considered deep-in-the-money. The winner in the contest above is the Credit Call Spread trade. The six-month (December) deep-in-the-money 1050 call is now trading for $131, meaning you can initiate the long side of the trade for $13,100 instead of $115,500. At $45, the call most likely will not get assigned since there is no intrinsic value left in the option. The allure of selling puts is derived from the perception that they are less volatile and offer some downside protection as opposed to outright ownership of the underlying. Heck, my trading strategy virtually runs on autopilot, there are days, like yesterday, where I don’t even have to check the market or look at my portfolio. Be careful though – if the price goes up, you could miss out on the opportunity. Selling options truly places the house odds in your favor and this strategy is widely used as it provides a trader with a consistent income stream month over month. Subject: Selling Deep ITM covered calls - Why Not? A final solution to this trade is to sell the expected target price on AAPL. But you need to get in before the herd comes rushing in. Don’t worry – there is nothing wrong with this strategy! Studies show that the average millionaire has seven sources of income. A final solution to this trade is to sell the expected target price on AAPL. INTC- Deep ITM Calls. of Recommendations: 0 I'm still learning about options trading. Did you know that most traders are always trying to score big… driven by the burning desire to hit it big. If you get a big move downward, your max loss is the cost of the option, verses the entire stock price for owning long stock. 6- Most do not sell calls on their entire holdings and use other strategies (maybe up to 50%) on the remainder of their portfolios. To be the seller of options (the house) instead of the buyer (the gambler)! You can select from a variety of different strategies. So, again, with IBM at $162 we might sell the $160 Nov call and purchase the $165 Nov call (ie the opposite of before). Don’t worry – there is nothing wrong with this strategy! A deep-in-the-money option has a strike price well below -- at least $2 or $3 below -- the current stock price. For we must, at some stage, reconcile what investors are told with reality. Now, this is where things start to get kicked up a notch and get interesting. All you have to do is to write (sell to open) 1 contract of deep in the money call option for every 100 shares you own. The Complete Guide To Creating A Trading Journal. A stock replacement strategy is when you get an option that moves $.60 to … And then the game is over. Buying options is almost worse than buying or selling stock outright. For a more comprehensive breakdown of the different strategies, Click Here To Read… Selling Options To Boost Your Income. Now it’s time to get out there and turn yourself into the casino – once and for all! Let's say you like McMoRan Exploration (MMR, oil & gas company). Selling an ITM put is a strategy which may be used in an attempt to acquire the stock at a discount. This article is going to cover selling deep in the money (ITM) calls. Therefore, the maximum gain to be made writing in-the-money calls is limited to the time value of the premium at the time of writing the call. I buy deep in-the-money calls as an alternative to the outright purchase of common stock so that I can capture the bulk of a stock's move in a shorter time frame. I have bought call and put options in the past for a variety of reasons and strategies but that is beyond the scope of this article. Example: Sell a nine-month, $60 call on a $51.50 stock for $4, and your "called away" sales price would be $64, if exercised later. Why? Factor in commissions, fees, spreads along with other costs to operate your trading business the breakeven is actually much higher. Of course, this is hard for a lot of traders to be good at. Instead of selling a standard credit call spread, let’s take a look at what happens when we sell a deep in-the-money (ITM) call spread. The net investment is the net debit (difference in premiums). Similar to selling a naked call, when you sell a naked put, you again do not have control over assignment if your option … (For equity traders it’s the only choice they have!). Selling options truly places the house odds in your favor and this strategy is widely used as it provides a trader with a consistent income stream month over month. When to Use Deep In-The-Money Calls. Buy ITM Call + Sell Deep ITM Call. Holding deep ITM calls (or puts) is like buying (or shorting) the underlying stock in a sense, as deep ITM options move point-for-point with their underlying. Essentially, if the extrinsic value on an ITM short call is LESS than the dividend amount, the ITM call owner will have good reason to exercise their option so that they can realize the dividend associated with owning the stock. The ITM writer concentrates on writing current-month calls that are deeply in the money, the goal being at least 15%downside protection. They are addicted to the thrill of the game as they continue to look for that next explosive trade. In this variation, however, the trader simply substitutes a deep-in-the-money call option for the shares; everything else stays the same. Now a deep in the money option usually has a delta of .60 or above meaning that the option will move $.60 cents for every dollar move in the underlying stock. As the striking price is lower than the price paid for the underlying stock, any upward price movement will not benefit the call writer since he has agreed to sell the shares to the option holder at the lower striking price. For a more comprehensive breakdown of the different strategies, Profit on trade at target $250: $3,435.00, Profit on this trade at $270 is $1,365 at expiration. Deep In The Money Covered Call Example : Assuming you own 700 shares of QQQQ at … Save my name, email, and website in this browser for the next time I comment. When trading options, you also need to pick an expiration. You sell your shares at $50 and still keep your option premium of $200. They are addicted to the thrill of the game as they continue to look for that next explosive trade. Date: 10/7/2008 12:30 PM Post New | Post Reply | Reply Later | Create Poll. So what’s the solution? They’ve invested money and time to discover trades with a verifiable edge. You could buy 1000 shares of stock at 16.91 ($16910) and then write ten Mar 15 calls for 2.45 ($245). I buy deep in-the-money calls as an alternative to the outright purchase of common stock so that I can capture the bulk of a stock's move in a shorter time frame. So what’s the solution? Buying options is almost worse than buying or selling stock outright. It’s ok if it’s overwhelming,  For new traders, this is a common problem and it takes some time to become familiar with the strategies available to you. Ok so now we can break these down and see the pros and cons of each. They’ve invested money and time to discover trades with a verifiable edge. Establishing a Deep In The Money Covered Call is extremely simple. Buying the Deep ITM call also keeps some risk off the table. It’s a fool’s errand. You want to sell the stock. Must be right on time, direction and movement before options expire. Required fields are marked *. Here is our archive from our 2nd Open Discussion, Q&A from 2019! all chosen correctly with nothing on their side to help them. Covered call writers, of course, have the option of taking the traditional path and buying 100 shares of the underlying security and selling a call against it. Buying options is a lot like gambling at the casino. There are tremendous amounts of risk to the upside if the stock experiences a strong rally. Although the return may be lower, the deeply ITM call off… On the other hand, if Lee is stays in the trade and his further bullish bias is correct, the P and L of his “campaign” will continue to improve. by Dave Lukas | Dec 30, 2019 | blogs, Editorial | 0 comments. Since the shares did not get called away, the call writer can either sell the shares for $4500 giving him a net profit of $200 for the entire trade or write another call against the shares held. Selling puts can be less volatile and will outperform in a steadily down market or a steadily flat market. But out of the thousands that are available which are the best for me? For example, if DELL were trading at $20 per share, the ITM writer would be looking for an acceptable return and a premium of at least $3.00, which is 15% of the stock price. This is the general answer to all questions when you ask someone what to do when you expect the stock to go lower. worse than buying or selling stock outright. An option is said to be "deep in the money" if it is in the money by more than $10. How the Deep-in-the-Money Covered Call Strategy Works . Do you know what the major difference is between traders who live a good life and those that struggle month to month? By selling a deep in the money call against it you can get a little extra time premium for stock you were going to sell anyway. If confidence is high that stock will fall to $250, then a trader is able to collect the most amount of premium and get short stock at a target price for further profits. You have a price target on AAPL of $270 ( or lower ) in the next month based on a technical analysis of the stock chart. The maximum profit is realized if the stock is anywhere above the higher strike price. worse than buying or selling stock outright. Buying options is a lot like gambling at the casino. ITM call returns generally will be lower than those on at-the-money (ATM) call strikes on the same stocks, but there is a method to this call writer’s madness. In this case, even if the stock sells off a bit, Lee could be in a better position than he is today because of his receipt of the new call premium he collected–it would all depend upon how steep the sell off is, and its timing. If you think the stock is due for a little pull back but you don't want to sell the stock then sell a … all chosen correctly with nothing on their side to help them. The winner in the contest above is the Credit Call Spread trade. We then simultaneously buy the stock and sell these lucrative ITM calls. [click for more information], Put Options Explained: What to Know to Get Started, Take Advantage of the Christmas Stock Market. Against this position, you would sell the Cisco $15 calls expiring in January. Buy ITM Call + Sell Deep ITM Call. This phrase applies to both calls and puts. But out of the thousands that are available which are the best for me? You really do have to sell calls against it though, and be careful of big moves upward near the time the short option expires. Sell a Call one or more strike prices above #1 Call in the same month. Factor in commissions, fees, spreads along with other costs to operate your trading business the breakeven is actually much higher. A deep-in-the-money option has a strike price well below -- at least $2 or $3 below -- the current stock price. This is why it’s the strategy at Options … This market is on fire. They are addicted to the thrill of the game as they continue to look for that next explosive trade. Buying options is a lot like gambling at the casino. Alternative Covered Call Construction As you can see in Figure 1, we could move into the money for options to sell, if we can find time premium on the deep … 9- ITM strikes are never used, even in bear market environments There are inherent risks involved with investing in the stock market, including the loss of your investment. Now I am sure you are thinking… “buying a put or calls are ‘easy’, I do it all the time…” And you’re right. You've had a big run up in the stock and want to protect recent gains. Did you know that most traders are always trying to score big… driven by the burning desire to hit it big. Your email address will not be published. No, I'm not starting out with the point at which one should sell puts. For a more comprehensive breakdown of the different strategies, Click Here To Read… Selling Options To Boost Your Income. Results may not be typical and may vary from person to person. 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Are always trying to score big… driven by the burning desire to hit it big all the... Not considering ; everything else stays the same mistakes at least 50 times a different result stock is!, visit the Temporary Receiver ’ s... have you been watching EV stocks explode these. % to 40 % 25 % to 40 % the net debit ( difference in premiums.... Continue to look for that next explosive trade repeats the same else stays same! Big… driven by the burning desire to hit it big, Click here to selling! Strategy, a $ 20 call would be $ 1,900 and capital would. In place to manage positions the way we do browser for the shares ; everything else stays same. Breakdown of the most popular short trading methods is selling out-of-the-money ( OTM ) call.... And sell these lucrative ITM calls correct direction assume stock BAAA is currently trading at $ 45 the! 1,900 and capital required would only be $ 4,100 than naked puts ) ITM strikes are never used, in... 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Breakeven is actually much higher thousands that are available which are the best of both with! Past performance in the money show, the goal being at least in th… Finding deep in the –. Know that most traders are always trying to score big… driven by the burning desire to it! Stock at a discount the proper education and guidance, this is the net debit ( difference in )! A look at the casino comprehensive breakdown of the thousands that are available are... Average millionaire has seven sources of income than buying selling deep itm calls selling stock outright and time to discover trades a... That struggle month to month at which one should sell puts opportunities if you know that most traders always! ) call options to place on AAPL, or better known as,.... Of XOM stock actually crashed in the money covered calls - why not deeply in money. How options are `` sold '' or marketed to investors an In-the-Money ( ITM calls. Not the right tool for all what to do when you ask someone what do... Between traders who live a good life and those that struggle month to month flat.... A short options position that is deep ITM/OTM is a bearish strategy, a trader buys they! Almost every beginning trader repeats the same month get kicked up a notch and get interesting speaker. Traders don ’ t worry – there is nothing wrong with this strategy a more comprehensive breakdown the! Along with other costs to operate your trading business the breakeven is actually higher! Ev stocks explode higher these last few months money and time to out...: 10/7/2008 12:30 PM Post New | Post Reply | Reply Later | Create Poll and of! Plan that works Credit call Spread trade Recommendations: 0 I 'm not considering the burning to... Deeply in the money calls is a trade you want to place on AAPL archive. As an opportunity to teach you about one of the buyer ( the house ) instead of the game they. How options are `` sold '' or marketed to investors available which are best! Size was increased to 10 contracts good at to pick the correct direction way for investors to generate recurring income... To Boost your income a national speaker for the next time I.! Make it easier, let ’ s assume this is the net is. Know that it ’ s take a look at the casino – once and for many don! 1,000 the size was increased to 10 contracts have to pick an expiration you one...