Trova il tuo prossimo podcast preferito

Abbonati oggi e leggi gratis per 30 giorni
#158 - Long Stock vs. Long Call Spread vs. LEAP Options?: Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be looking at the differences between long stock, long call spreads and leap options, especially if you are insanely bullish on a particular...

#158 - Long Stock vs. Long Call Spread vs. LEAP Options?: Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be looking at the differences between long stock, long call spreads and leap options, especially if you are insanely bullish on a particular...

A partire dalThe "Daily Call" From Option Alpha


#158 - Long Stock vs. Long Call Spread vs. LEAP Options?: Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be looking at the differences between long stock, long call spreads and leap options, especially if you are insanely bullish on a particular...

A partire dalThe "Daily Call" From Option Alpha

valutazioni:
Lunghezza:
6 minuti
Pubblicato:
Feb 27, 2018
Formato:
Episodio podcast

Descrizione

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be looking at the differences between long stock, long call spreads and leap options, especially if you are insanely bullish on a particular stock or a particular ETF. This actually came in from one of our members in the Option Alpha community, so thank you guys again for submitting questions because this does really help me figure out what you guys are interested in. I would've not necessarily put all these topics together in one quick little daily podcast, but this is what we’re doing because this was a question from somebody. They were particularly interested in this because they are super, super bullish for whatever reason on Apple. Not that I’m not or the other way. They’re just insanely bullish. The question becomes, “What do you do?” Well, I think it really comes down to just tradeoffs and just understanding what the differences are. The first one is long stock. Now, long stock has the ability to immediately take advantage of the stock price. If you get in at say 160 on Apple and Apple goes above 160, great, you’re starting to make money. But stock is super, super capital intensive, so in the case of Apple, if you’re going to buy 100 shares of Apple at 160, it’s basically going to cost you about $16,000. That's not a small nugget to basically outlay out of your account. The benefit to stock obviously is that you obviously maintain all of the exposure to the upside with all of the downside exposure to stock obviously, but you can collect dividends along the way and basically be paid for your position. You can sell covered calls against it which we didn’t necessarily mention in the show title, but that’s a possibility. The other thing that you can do is you can do a long call debit spread. You can buy an in the money option and then sell an out of the money call option and basically do a spread. Now, I would prefer given all of these choices, if I’m super long on something or super bullish on something, I would prefer to do the spread versus doing any of the other two options. The reason is because even though you cap your upside potential, you can basically cap your downside potential on a debit spread and you can get your breakeven point close to or right where the stock is trading. We all know it’s insanely hard to truly predict where stocks go, so why not get your breakeven point very, very close to where the stock is trading? In the case of a long debit spread, you might do say a debit spread that’s one year out or two years out, however far you want to go. You might buy the 150s and sell the 170s and your breakeven point might be right around 160. Again, buy the 150 call, sell the 170 calls. It reduces the cost of the 150 calls that you bought and again, your breakeven point might be right around 160 as well. Now, you don’t keep all of the upside potential. Apple goes much, much higher than 170, then you still obviously give up some of that upside potential, but you have much less downside risk and you have effectively the same probability of success as you would holding long stock. The other way to go about it is to do what are called “leap options” which are basically just option contracts really far out into the future. The example that I gave, if they’re out a year or so or two years out, those are probably considered mostly leap options. In the case of Apple right now, I’m actually looking at the chart right now or the pricing table. You can actually buy options out to January of 2020 right now. It’s about 700+ days out which is actually pretty far. I mean, that's over two years or so, very close to two years or so out in the option contract pricing table. In that case, those option contracts are going to be definitely more expensive because you’re locking in a much longer time period for somebody to either make money or lose money on that contract and that means that if you buy those contracts, you reall
Pubblicato:
Feb 27, 2018
Formato:
Episodio podcast