Effective Price

[Rich Conklin]

if I was looking to buy a SPY call option today, how much over the 1% of the effective price can I safely go? If I can’t find a SPY option 365 days out, what is the closet expiration date I should use? I don’t see the answer to these questions in the ITM book, although I may have missed it. Thank you in advance for your response.

[George Halongton]

Dear Rich Conklin,

Please see the link below for the answer to your question. Choose expiry of more than 9 months of expiration with delta of at least 0.80. Another rule we can use is to buy Deep In The Money leaps call of SPY with at least $10,000 in cost. If we don’t have $10k for SPY, then buy SPYG or SPLG instead. It is cheaper.

https://www.optionsplaybook.com/rookies-corner/buying-leap-options

Now, you need to pick your strike price. You want to buy a LEAPS call that is deep in-the-money. (When talking about a call, “in-the-money” means the strike price is below the current stock price.) A general rule of thumb to use while running this strategy is to look for a delta of .80 or more at the strike price you choose.

[Rich Conklin]

Thanks for your reply.

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