Deep in the Money DITM Strategy vs. Purchasing Stock

The most essential benefits of deep in the money strategy against that of buying stock are: there is a lower direct cost, your capital is less at risk, high delta and maximum movement, and higher ROI. However there is an added benefit to the strategy that might be somewhat unexpected. What are the things that a person is able to do with the extra fifty percent of money that has been saved with the deep in the money DITM strategies? There are a couple things that could be done. First of all that extra money could be used to purchase more deep in the money DITM call options on additional stock one is interested in. and the other idea is to place that saved money in very safe investments such as Treasury bills as well as certificates of deposit, etc. These are a couple things that could be very good side benefits. They in fact provide you with more of a downside cushion in the even the stock as well as the call options, do end up failing in value. If one loses the value on the all options, the Treasury bills can keep on providing you with income to make up for some of the loss you have taken on. Stock buyers that buy straight up do not have the added benefit of a tad bit more cash to place into certificates of deposit or Treasury bills.

What to do when faced with expiration? 
So what is it that should be done when option expiration is close by? Not to panic, there are some things that can be done; actually there are four different things that can be done. In the worse case scenario the option you have will expire and will therefore bring about a one hundred percent loss on the investment you made. While it is not a nice thing for people to go through, it is still a possibility they are aware of and it is known that the maximum loss involves just this. One other thing that can be done is that you sell the option at any time before expiration. There are not any sorts of regulations that say how long a person is able to hold onto the option before expiration. One other alternative is to roll the option to a later date. This is actually a two part trade where the original option contract will have to be sold and then another deep in the money DITM option will need to be purchased. Finally it is also possible to exercise the call option. In the case this alternative was chosen, it will be necessary and a requirement to pay for the balance of the stock during this moment. Keep in mind that only a down payment was made at the beginning of the trade and it is now necessary and time to pay for the balance. Keep in mind though with the last alternative that we have just mentioned, to make sure you have the necessary funds in order to pay for the shares’ worth of option contracts that have been purchased. If for instance a person were to buy five option contracts, they would in essence be buying five hundred shares of stock. In cases in which the funds that would be needed to do this are not available, it would be a good idea to consider selling the option straight up or moving over to another expiration date.

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