This is a newbie question for sure. Is it just me or should buying long calls be quick and easy money? I'm just trying to understand this so bear with me.
For example, the QQQ current price is 457.93. Why not buy a June 4th call option with a 458 strike, wait a day or two (let's just assume the price will go up short term for this example), be profitable and sell the contract? Did I miss something?
Also, I see people buying call options with a higher strike. But why? Isn't the whole point to hit the strike and go beyond it to make profit? So why not just pick the next, soonest call strike in the options chain rather than something higher. In the QQQ example, why are people getting June 4th calls at a 460 strike rather than 458? Seems more profitable is to pick 458 rather than 460 and more achievable in the timeframe, no?
I get it that price can go down, take longer to play out, or go sideways, among other possibilities. Please let's just assume a constant move up in this example to keep things simple.
Are long calls not just easy money?
byu/Substantial_Prune_64 inoptions
Posted by Substantial_Prune_64
4 Comments
This is a newbie answer: you’re right, especially when theybare already ‘in the money,’ these options have a high intrinsic value, and if as you say, if close to current price, a high chance of value.
They are priced dynamically and individually, so if you agree with everyone at the same time, there will be competition for the same options.
If you are able and willing to stake more money by buying these (theoretically) safer but more expensive ‘ITM’ options, then one can find less competition willing or able to place fewer-but-pricier options, preferring often a low cost entry with a high payoff possibility, albeit considered low probability.
Or you could be earlier than others…
Or you could have an edge by learning to sell covered calls, as their value tends to decrease with less time, while buying a call that is popularly considered likely to be valuable will be more expensive.
Options are a good waybto lose money, maybe all the money in your account and fine print of your agreements, maybe more.
So keep up asking q’s.
“Let’s just assume price goes up short term in this example…”
Ok so lemme ask you this -what happens if it goes down …?
Oh yes, it’s super easy money (this is why I’d ask you to keep your mouth shut about it). Actually options are basically free money, glad not too many people know about it. For example, if we buy QQQ calls tomorrow at the open and let’s assume QQQ goes up a healthy 5% tomorrow, our calls will print!!!!!!! On the other hand, we might think QQQ is going down, so we buy puts tomorrow at the close (after closing our calls position obv), and then let’s assume QQQ goes down another 10%, our puts are printing as well!!!!! So in 2 days we will make about 500% return, obviously assuming we use all of our buying power, not too shabby! Now let’s assume this happens, thee this is great!!!!!! And the strategy is great as well!!!!!!!!!!
Why do people by calls vs stock?
The answer is leverage and downside protection.
Your ATM call can only lose like $5 per share and actual shares could lose way more.
Why do people buy OTM vs ATM? Leverage.
In fact, a common strategy is to sell one ATM call and buy 2 OTM calls. When you buy your ATM call maybe someone on the other side is getting 2 OTM calls.