www.longvolreport.com
Open in
urlscan Pro
2606:4700:4400::6812:2857
Public Scan
URL:
https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack
Submission: On December 11 via api from US — Scanned from DE
Submission: On December 11 via api from US — Scanned from DE
Form analysis 6 forms found in the DOM
<form class="frontend-components-SubscribePrompt-module__form--HqYBK"><input placeholder="Type your email..." value="" class="frontend-components-SubscribePrompt-module__emailInput--rslUF">
<div id="error-container"></div><button type="submit"
class="pencraft frontend-pencraft-Button-module__buttonBase--T0hXz frontend-pencraft-Button-module__button--d6e9L frontend-pencraft-Button-module__priority_primary-theme--o7dw6 frontend-pencraft-Button-module__size_medium--PaDMH frontend-pencraft-Button-module__fill_filled--ysyt0 frontend-pencraft-Button-module__grow--PaHXm frontend-pencraft-Box-module__flex-justify-center--SQPji"
tabindex="0">Subscribe</button>
</form>POST /api/v1/free?nojs=true
<form action="/api/v1/free?nojs=true" method="post" class="form frontend-components-free_email_form-module__form--LDIzl" novalidate=""><input type="hidden" name="first_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="first_referrer"><input type="hidden" name="current_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="current_referrer"><input type="hidden" name="referral_code"><input type="hidden" name="source"
value="subscribe-widget-preamble"><input type="hidden" name="referring_pub_id"><input type="hidden" name="additional_referring_pub_ids">
<div class="frontend-components-free_email_form-module__sideBySideWrap--yhsgv">
<div class="frontend-components-free_email_form-module__emailInputWrapper--BXNrb"><input type="email" name="email" placeholder="Type your email..." class="pencraft frontend-components-free_email_form-module__emailInput--BLQGf"></div><button
type="submit" class="button rightButton primary subscribe-btn frontend-components-free_email_form-module__button--WcLG9" tabindex="0"><span class="button-text ">Subscribe</span></button>
</div>
<div id="error-container"></div>
</form>POST /api/v1/free?nojs=true
<form action="/api/v1/free?nojs=true" method="post" class="form frontend-components-free_email_form-module__form--LDIzl" novalidate=""><input type="hidden" name="first_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="first_referrer"><input type="hidden" name="current_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="current_referrer"><input type="hidden" name="referral_code"><input type="hidden" name="source"
value="subscribe-widget-preamble"><input type="hidden" name="referring_pub_id"><input type="hidden" name="additional_referring_pub_ids">
<div class="frontend-components-free_email_form-module__sideBySideWrap--yhsgv">
<div class="frontend-components-free_email_form-module__emailInputWrapper--BXNrb"><input type="email" name="email" placeholder="Type your email..." class="pencraft frontend-components-free_email_form-module__emailInput--BLQGf"></div><button
type="submit" class="button rightButton primary subscribe-btn frontend-components-free_email_form-module__button--WcLG9" tabindex="0"><span class="button-text ">Subscribe</span></button>
</div>
<div id="error-container"></div>
</form>POST
<form method="post" class="form comment-input" novalidate="">
<picture>
<source type="image/webp" srcset="https://substackcdn.com/image/fetch/w_64,h_64,c_fill,f_webp,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack.com%2Fimg%2Favatars%2Flogged-out.png"><img
src="https://substackcdn.com/image/fetch/w_64,h_64,c_fill,f_auto,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack.com%2Fimg%2Favatars%2Flogged-out.png" sizes="100vw" alt="" style="width: 32px; height: 32px;" width="64" height="64"
class="frontend-components-responsive_img-module__img--Pgjj2 frontend-reader2-Avatar-module__avatar--nE_uY pencraft frontend-pencraft-Box-module__reset--VfQY8">
</picture>
<div class="pencraft frontend-pencraft-Box-module__flexGrow--mx4xz frontend-pencraft-Box-module__reset--VfQY8 frontend-pencraft-Box-module__display-flex--ZqeZt frontend-pencraft-Box-module__flex-direction-column--Rq7pk comment-input-right">
<textarea data-gramm="false" data-gramm_editor="false" data-enable-grammarly="false" name="body" placeholder="Write a comment..." style="height: 96px;"></textarea>
<div id="error-container"></div>
<div
class="pencraft frontend-pencraft-Box-module__reset--VfQY8 frontend-pencraft-Box-module__display-flex--ZqeZt frontend-pencraft-Box-module__flex-justify-space-between--NvIcg frontend-pencraft-Box-module__flex-align-center--rSd6h frontend-pencraft-Box-module__padding-top-8--VHq_j">
</div>
</div>
</form>POST /api/v1/free?nojs=true
<form action="/api/v1/free?nojs=true" method="post" class="form frontend-components-free_email_form-module__form--LDIzl" novalidate=""><input type="hidden" name="first_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="first_referrer"><input type="hidden" name="current_url"
value="https://www.longvolreport.com/p/what-are-deep-in-the-money-options?utm_source=substack"><input type="hidden" name="current_referrer"><input type="hidden" name="referral_code"><input type="hidden" name="source"
value="subscribe_footer"><input type="hidden" name="referring_pub_id"><input type="hidden" name="additional_referring_pub_ids">
<div class="frontend-components-free_email_form-module__sideBySideWrap--yhsgv">
<div class="frontend-components-free_email_form-module__emailInputWrapper--BXNrb"><input type="email" name="email" placeholder="Type your email..."
class="pencraft frontend-components-free_email_form-module__emailInput--BLQGf frontend-components-free_email_form-module__emailInputOnAccentBackground--WwaMR"></div><button type="submit"
class="button rightButton primary subscribe-btn frontend-components-free_email_form-module__button--WcLG9 frontend-components-free_email_form-module__buttonOnAccentBackground--pxtYI" tabindex="0"><span
class="button-text ">Subscribe</span></button>
</div>
<div id="error-container"></div>
</form>POST /api/v1/user/profile
<form class="form " action="/api/v1/user/profile" method="post" novalidate=""><label for="name">Name (Required)</label><input autofocus="true" type="text" class="profile-name" placeholder="Type your name..." name="name" id="name"><label
for="handle">Handle</label><input type="text" class="profile-name" placeholder="Type your handle..." name="handle" id="handle"><label for="bio">Bio</label><textarea class="profile-bio" placeholder="Say something about yourself..." name="bio"
id="bio"></textarea><input type="email" class="profile-email" placeholder="Your email…" name="email"><label class="profile-signup-checkbox"><input type="checkbox" name="free_signup" checked=""> Subscribe to the newsletter</label><input
type="hidden" name="confirmation_redirect_pathname" value="/p/what-are-deep-in-the-money-options"><input type="hidden" name="photo_url"><input type="hidden" name="user_id"><input type="hidden" name="needs_photo" value="false"><input type="hidden"
name="token">
<div id="error-container"></div>
<p class="left hidden">undefined subscriptions will be displayed on your profile (<a>edit</a>)</p>
<div class="modal-ctas">
<p class="skip hidden"><a class="small">Skip for now</a></p><button tabindex="0" type="submit" class="button primary">Save & Post Comment</button>
</div>
</form>Text Content
Subscribe Sign in Share this post WHAT ARE DEEP IN THE MONEY OPTIONS? www.longvolreport.com Copy link Facebook Email Note Other DISCOVER MORE FROM THE LONGVOL REPORT WEEKLY MARKET REPORT ON STOCKS, S&P500, NASDAQ, OIL, GOLD AND PREMIUM TECHNICAL ANALYSIS. Subscribe Continue reading Sign in WHAT ARE DEEP IN THE MONEY OPTIONS? A QUICK PRIMER. Dan Bustamante Oct 9, 2023 5 Share this post WHAT ARE DEEP IN THE MONEY OPTIONS? www.longvolreport.com Copy link Facebook Email Note Other 1 Share In this post, I am going to break down deep-in-the-money options. There are tactical advantages and real-life applications used for investors and traders. Before I get into it let me start with this: last week I gave a webinar on Retail Trading/Investing v. Portfolio Management and I started it with this: How do you get past the retail trading narrative? Part of investing/trading is getting past that narrative so in my opinion, once you do that then you can start to really grasp what I am going to cover in this post. You have objective truths and subjective opinions and part of learning to invest requires you to separate those two effectively. 30 DAY TRIAL HERE -------------------------------------------------------------------------------- 1. WHAT ARE SOME NARRATIVES ABOUT OPTIONS? Let’s do a quick primer on options and get past a few narratives so that you can hopefully look at this objectively. 1. Options are risky 2. Most retail trading is short-term options 3. I don’t understand how the work Those are 3 common narratives. Options are risky if you use them to sell naked calls or other strategies that put your account at risk. That is an objective truth. Most retail trading is in short-term options. That is an objective truth. (Source) I don’t understand how they work. Like most things, you can figure out how they work by spending a little time too. In this case, go directly to the source to avoid the narrative (which if you watch that webinar above) usually gets spun. This is the Chicago Board of Options Exchange - education here on options. -------------------------------------------------------------------------------- 2. WHAT ARE DITM OPTIONS > Deep in the money is an option that has an exercise or strike price > significantly below (for a call option) or above (for a put option) the market > price of the underlying asset. The value of such an option is nearly all > intrinsic value and minimal extrinsic or time value. That’s the answer - objective truth. Now how can they be used to benefit a portfolio to structure an investment thesis? This is where subjective opinions come into play. So this is important and where I think most get lost on this path to figuring out whether or not there is a benefit to their portfolio. I’ve used them for over 5+ years, in certain situations, to allow me to express a view on an idea long or short and I’ll share some benefits. -------------------------------------------------------------------------------- 3. EXAMPLE ONE BENEFIT: STOCK REPLACEMENT You find a stock or company you believe in but your portfolio might be: A) Smaller ($10-$50K) B) Has it’s cashed tied up in other investments you like The point is this: your capital/bankroll is limited or risk-averse so you want to maximize the use of your capital while finding fixed risk and leverage. An option will do that. And when done with DITM options it can produce a smooth equity curve. The LongVol is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. Subscribe Buying Apple Shares Directly > Assume you wanted to buy 100 shares of Apple at $179.50 for a total of > $17,950. > > Assume that you have a $100,000 portfolio. > > That becomes 18% of your capital allocated to one idea - that is neither good > or bad but for the sake of this argument, that is a lot of risk in one idea. > > If the stock moved against you -10% you would be down $1,795 - again that is > not a big move and fluctuations are expected when buying a stock. The DITM Call - Stock Replacement > You could buy an April 2024 155 strike call for $28.60 or $2,860 instead. > > Your max loss (fixed cost) is capped at $2,860. The worst that happens is you > lose $2,860 because you don’t have a stop-in or just forget. > > Alternatively, if the stock moved against you -10% that option would lose > (give or take) $300-$500 in value. The Traders Perspective If you look at buying Apple from the idea that this is an investment then don’t use DITM. Buy the shares, hold the shares, and do as you will. My view: I like to maximize portfolios and leverage capital WITHOUT extra risk. A DITM call like this does just that by allowing you to replace owning the shares with less capital outlay and less portfolio risk while giving you leverage. I am trading the move, not investing in it. * So if that call moves +30% for me or +$858 that is a great trade. ($2,860 X .30% = $858) * If the stock example moves +10% for me I would make $1,795 - also a great trade. So it comes down to a few things: 1. Do you care about overall portfolio risk? If not, buy the shares. 2. Do you want to control the downside risk? If so buy the DITM option Risk management for me is more important than the actual dollar return and if you watch that Webinar above you’ll understand further about risk-adjusted returns. -------------------------------------------------------------------------------- 4. EXAMPLE TWO BENEFIT: SHORT SELLING/BETTING AGAINST PRICE FALLING Assume you want to bet on a long-term thesis that something will trade lower. For a real-life example, is housing stocks as of recent. A year ago, Carvana was short - and part of my $1,000,000 trade was using DITM options to express part of that view. When shorting a stock with the actual shares you encounter: 1. Borrow fees (sometimes high) 2. Portfolio risk because the stock can be squeezed 3. Margin All of those are objective truths. What is subjective is whether those are bad or good, that depends on who it is. For a retail investor (again using the $100K account) it’s dangerous because you put the portfolio at risk. This is where a DITM Put can come into play. 30 DAY TRIAL HERE That’s XHB - a home builder ETF and a current example that I have a short on and some of that short is with DITM Puts. The ETF is down from the start of September to about -10%. The January 85 strike put which was trading at $4.55-$6.00 near that time is trading at $10.00-$12.00 at the time of this post. Shorting the ETF v. Buying the DITM Put > Shorting the ETF would at $85 would cost you $8,500 + any margin required to > hold that position. > > So again, on a $100,000 portfolio that’s only 8.5% of total portfolio capital. > > That is neither good nor bad - this is subjective opinion on portfolio risk. > > Buying the DITM Put - > > Assume you bought 3 of the DITM puts at $6.00 for a total cost of $1,800. > > Your max loss is $1,800 (again without a stop). > > But this idea worked so say you sold at current price of $10.50 for a gain of > +$4.50 per contract. > > That total gain is $1,350. That is a $1,350 gain with capital outlay of > $1,800. > > That translates to 1.8% of the portfolio v. 8.5% of the portfolio. > > So risk-adjusted, which is the better trade? > > Objectively, the DITM put trade. -------------------------------------------------------------------------------- 5. FINAL NOTES Let’s summarize this quickly. * DITM options reduce portfolio risk (subjective opinion) * DITM options allow you to bet on prices dropping lower with puts * DITM options allow you to express a long-term view without the volatility of buying the actual stock/etf * DITM options allow you to maximize the portfolio with leverage that does not require margin or the risk of naked call selling or other dangerous strategies There is a framework that goes into using them and not every situation/stock requires them. For me, the idea needs to be 1-6 months estimated time. They usually enhance my returns - for example, on Carvana being short the shares and puts helped to increase the RoR. I hope this primer helped if there are questions or clarifications needed please comment below. The intention is to create a PDF primer that might go into more detail. Dan Get a 30 Day Trial to AST Alerts Here The LongVol is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. Subscribe -------------------------------------------------------------------------------- This article is presented for informational purposes only, is an opinion, is not intended to recommend any investment, and is not an offer to sell or the solicitation of an offer to purchase an interest in any current or future investments. Any such solicitation of an offer to purchase interest will be made by a definitive private placement memorandum or other offering documents. 5 Likes 5 Share this post WHAT ARE DEEP IN THE MONEY OPTIONS? www.longvolreport.com Copy link Facebook Email Note Other 1 Share Previous Next 1 Comment Share this discussion WHAT ARE DEEP IN THE MONEY OPTIONS? www.longvolreport.com Copy link Facebook Email Note Other Dan Bustamante Oct 9Author Please comment here if you need clarification or want me to expand on anything not covered! Expand full comment Like Reply Share Top New Community Crude Oil - Bull or Bear? Quick notes on how I am trading it with this sell-off. Dec 7 • Dan Bustamante 6 Share this post CRUDE OIL - BULL OR BEAR? www.longvolreport.com Copy link Facebook Email Note Other My Investment Framework. This is a quick look into the investment framework that I apply - it’s an Absolute Return model and it’s very similar (leaving some things out) to what… Jul 1 • Dan Bustamante 4 Share this post MY INVESTMENT FRAMEWORK. www.longvolreport.com Copy link Facebook Email Note Other Mid Week Market Update We’re here in a new trading month and 2023 is all but over. It’s been a profitable year for DeltaOne members and the added AST Alerts is off to a very… Nov 1 • Dan Bustamante 4 Share this post MID WEEK MARKET UPDATE www.longvolreport.com Copy link Facebook Email Note Other 1 See all Ready for more? Subscribe © 2023 TLV Media LLC Privacy ∙ Terms ∙ Collection notice Start WritingGet the app Substack is the home for great writing CREATE YOUR PROFILE Name (Required)HandleBio Subscribe to the newsletter undefined subscriptions will be displayed on your profile (edit) Skip for now Save & Post Comment ONLY PAID SUBSCRIBERS CAN COMMENT ON THIS POST Subscribe Already a paid subscriber? Sign in CHECK YOUR EMAIL For your security, we need to re-authenticate you. Click the link we sent to , or click here to sign in. OUR USE OF COOKIES We use necessary cookies to make our site work. We also set performance and functionality cookies that help us make improvements by measuring traffic on our site. For more detailed information about the cookies we use, please see our privacy policy. ✖ This site requires JavaScript to run correctly. Please turn on JavaScript or unblock scripts