Just wanted to add this opinion giving the conversation of people not wanting to use margin (which I generally agree with).
Why Deep ITM LEAPs Call Options Could Be Better Than Margin
ITM = In The Money
LEAPS = Long-Term Equity Anticipation Securities
#1 - The safest thing to do is hold shares. However, if you have the inkling to use a little bit of leverage, it is probably better and less stressful to buy LEAPs than more shares on margin.
#2 - Using a bit of leverage should be reserved for when you think the stock has hit or near a medium- term bottom.
1. Say you have own $100k of equity in TSLA at current share price. Say you are allowed to borrow up to 40% of that equity to buy more shares to give you 1.4x leverage. This of course would be stupid because any drop in stock price would give you a margin call, and it's quite likely there will some short term dip. So you try to estimate what the biggest dip could be from here. Say you estimate it's a 20% drop in share price, to $145. So actaully you only have enough margin for 1.3x. But still, now you have to stress out everytime the stock drops say 10-15%, not enjoyable.
But maybe you are super convinced the stock cannot drop past $100, so you use margin so you won't have any issues unless the stock drops past $100. So in reality you can leverage to 1.2x.
Compare that to buying Jan 2025 $50 calls with your $100k in cash. The cells indicate the call % change in value, each row being a % change in share price from current value, and each column a point in time. The calls give you about ~25%-30% (1.25x-1.3x) leverage depending on time and stock price value.
But you get that leverage without using margin.
So even if you buy these and the stock dips to $100 temporarily, you do not need to have any of the short term stress you would have to with margin.
Downsides:
If the stock goes and stays below $100 long term, you will start losing more money than you would have using margin. Share price near $50 in 2 years means you lose all your money. That is a big downside, and while may seem very unlikely, it is the reason there is upside allowed on all other share prices above it.
There is no free lunch.
Also, whether you close the trade at some point before expiration or acquire the shares, this forces a tax event in your taxable accounts. Selling profitable calls after > 1 year of holding is a long term capital gain.
As you increase the strike price, you get more leverage but higher risk of losing a crapton of money to the downside. That's why I'm only bringing up the DEEP ITM example and talking about it after the stock has already been beating up bigly.
IMO it's safer and less stressful than using margin especially in current conditions. Not advice.
P.S. - if instead of buying straight $50 calls, you bought a $50 / $400 call spread, you leverage will increase to 1.8x near expiration up to $400.
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