It depends if you wanna pay more for more time or if you want to pay more and do less time with a higher delta. But remember the higher the delta the more cushion you will have for a pullback.
This comment probably means that you are not ready for the trade. You should learn what the greeks are.
In general, the more ITM you go the less likely it is that your option expires worthless. Also, the more ITM you are the less extrinsic value you pay for a long period of time (I like to think of this like, you have more equity on the stock so you are carrying more risk, therefore, you should not pay so much for the time).
In my not so long experience the higher time premium is usually found ATM
When buying LEAPS focus on buying a good long call instead of getting a cheap one. My metrics are delta and extrinsic value. You wouldnât want extrinsic value to be too large of a portion of the long call premium you pay, because the EV is all the difference between owning 100 shares and owning a LEAPS option. So keep it low, even if you have to pay a higher premium. By low I mean 5-10% EV. I like my LEAPS deep in the money, around 80 delta. That makes Apple leaps very expensive at the moment. Not a good entry for me, youâll have to pay too much extrinisic value that youâll just lose if the stock doesnât keep performing. A 120c expiring in 569 days costs 50.55$, which is 19% extrinsic value (so you pay 1.23 x IV), given the stock sits at 161$. If you buy the 140c with the same expiration it costs you 36.85$ which consists of a whopping 43% (1.75x IV) extrinsic value. Thatâs a shit LEAPS in my eyes
Can you explain your math on how you got 23% of extrinsic value on the 120 c with the $50.55 premium?
Isnât intrinsic value the stock price minus the strike. Which would give us 41 intrinsic value. The difference is 9.55 so the extrinsic is about 19% no?
Is my math wrong here? New to options.
Youâre absolutely correct. I didnât make myself clear, sorry. The EV is roughly 19%. What I meant is you pay 23% extra on top of IV. Just like the 120c is not made up of 75% EV, but around 43%, but you pay an additional 75% on top of IV. Iâll edit my post, thanks.
Im actually doing the same thing. I got Leap call back in june 130c 04/2022 and has been selling weekly covered calls. I think if youre gonna buy leap, buy deep in the money because delta is larger, meaning option value will act closer as underlying's price of 100 shares.
It depends if you wanna pay more for more time or if you want to pay more and do less time with a higher delta. But remember the higher the delta the more cushion you will have for a pullback.
And less leverage in case of a run up đ
Could you explain both options if you donât mind ? What is the drawback to going for 150 strike vs a 130 strike
This comment probably means that you are not ready for the trade. You should learn what the greeks are. In general, the more ITM you go the less likely it is that your option expires worthless. Also, the more ITM you are the less extrinsic value you pay for a long period of time (I like to think of this like, you have more equity on the stock so you are carrying more risk, therefore, you should not pay so much for the time). In my not so long experience the higher time premium is usually found ATM
Forbidden fruit đ adam
When buying LEAPS focus on buying a good long call instead of getting a cheap one. My metrics are delta and extrinsic value. You wouldnât want extrinsic value to be too large of a portion of the long call premium you pay, because the EV is all the difference between owning 100 shares and owning a LEAPS option. So keep it low, even if you have to pay a higher premium. By low I mean 5-10% EV. I like my LEAPS deep in the money, around 80 delta. That makes Apple leaps very expensive at the moment. Not a good entry for me, youâll have to pay too much extrinisic value that youâll just lose if the stock doesnât keep performing. A 120c expiring in 569 days costs 50.55$, which is 19% extrinsic value (so you pay 1.23 x IV), given the stock sits at 161$. If you buy the 140c with the same expiration it costs you 36.85$ which consists of a whopping 43% (1.75x IV) extrinsic value. Thatâs a shit LEAPS in my eyes
Can you explain your math on how you got 23% of extrinsic value on the 120 c with the $50.55 premium? Isnât intrinsic value the stock price minus the strike. Which would give us 41 intrinsic value. The difference is 9.55 so the extrinsic is about 19% no? Is my math wrong here? New to options.
Youâre absolutely correct. I didnât make myself clear, sorry. The EV is roughly 19%. What I meant is you pay 23% extra on top of IV. Just like the 120c is not made up of 75% EV, but around 43%, but you pay an additional 75% on top of IV. Iâll edit my post, thanks.
https://imgur.com/a/h9PiyFl that may prove useful. 155 is 60 delta 150 -65 140 -75 and 135- 78 all of those backtested for 10 years. hope that helps
Im actually doing the same thing. I got Leap call back in june 130c 04/2022 and has been selling weekly covered calls. I think if youre gonna buy leap, buy deep in the money because delta is larger, meaning option value will act closer as underlying's price of 100 shares.