If I am bullish on a stock in couple of years, how much I am risking if I buy in the money option? Let's say premium is a few thousands.
Or if it's nlt good, you know better alternative?
risk of buying In the money call option, very long expiration date any paying high premium?
byu/6M66 inoptions
Posted by 6M66
8 Comments
Why not just buy the stock ? What extra premium are you paying for the call option ?
Where do you expect the stock to be in 2 years ? From there, do the math.
I have been considering putting on a leaps trade but I haven’t done it. I have been sort of planning it out in case the perfect opportunity arises – otherwise I’m happy with shares. The cool thing about buying very deep itm calls, is that almost all the value is intrinsic. If you buy deep in the money and sell well before expiration, you are essentially gaining the exposure of having 100 shares for maybe 50% of the share price. For my trade, I’m considering something like MSFT with a 2 year expiration and looking to sell after 12 and probably before 18 months.
You can research all about it – some people call it Stock Replacement.
you are risking the few thousand you are paying in premium.
Look at the price of the put… the stock has
To rally that much for you to make money
[https://optionstrat.com/build/long-call/AAPL/.AAPL260116C200](https://optionstrat.com/build/long-call/AAPL/.AAPL260116C200)
Lets use Apple as an example. Right now price is $229 per share.
If buy a LEAP option for Jan 16 2026 at $200 strike price will pay somewhere around $5003 per contract.
If Apple goes up to roughly $246 thats when this LEAP can be sold for more than it was purchased for. See the above link for the actual price vs time breakdown.
If Apple for some reason drops below $200 and stays there then you would likely lose the $5003 you initial paid for the option.
(not financial advice)
What’s your question? If you pay a few thousand for an option, the most you can lose is a few thousand. Any option can go to zero.
The primary risk is low liquidity in my experience, assuming the price goes your way.
Options are made up of intrinsic value and extrinsic value. If you are deep ITM the value of your call option will be mostly intrinsic and some extrinsic.
The risk you have is if the underlying stock moves against you over the next 2-3 years.
A good idea would be to buy deep ITM calls as far out as possible with a low breakeven. I like a 5% to 10% breakeven. You can still lose the entire premium paid, but if you a choose a stock that goes up in value, you will magnify your returns.