Deep In The Money Call Options - Better Than Stocks - No Kidding!

Today, we're going to talk about a concept I learned from a billion-dollar hedge fund manager. It is a way to reduce risk and make tremendously more profits, all in the same go. I'm talking about using deep in-the-money call options and why they are better than stocks.

Now, this video is popping off right now on YouTube, and I wanted to share my perspective on this as well. So, we're going to watch this together. I'm going to coach you up as best as I can on how to use leverage to supercharge your portfolio.

All right, traders. In this video, we're going to be going over one of our most popular topics in options trading: buying deep in-the-money call options versus buying shares of stock. I've made...

Now, this is where I live. Not in his face. Sorry, that was weird. This is where I live over here in the deep in-the-money call options, right? 80 delta. Anywhere from 70 to 90 delta is where Chris's wheelhouse is. Now, the reason being, and I'm sure he's going to explain all this, is because you can get tremendous amounts of leverage while at the same time spending tremendously less dollars out of your account for basically the same position as if you were trading stock.

We're also going to be using our uh our position sizing spreadsheet over here. Uh, you can get this from our Discord. Just go into the FAQ and uh member contributions and um, you'll be able to download this as well because uh being able to to price out exactly how much leverage you can get for how little dollars you can get is tremendous.

Now, I know a lot of you are thinking, and and I'm sure I'll explain this later, that deep in-the-money call options, those are super expensive. Why do I want to buy those? They are super expensive for a reason. If you want to buy cheap lotto tickets, there's a 7-Eleven on the corner, and there's the out-of-the-money options that you can buy any day of the week. All right, if you want to buy lotto tickets, those are your two options. You go to the 7-Eleven or you go out of the money. If you want leveraged investments to completely change your life, like Corey, this is what you need to pay attention to.

Many videos on this subject before. For whatever reason, these videos get more views than any other videos that I make. So, once again, we're going back to that topic: buying deep in-the-money calls versus buying stocks will save you thousands of dollars, will slash your risk by thousands of dollars, and by lots and lots of percent, and it can offer you return on investments of at least triple versus buying shares of stock. A lot of times where um, where I'm trading at, it's it's generally leverage between 7 and 12x. Leverage between seven and 12x for what you would buy um with with the stock outright. Um, so you can you can basically make 7 to 12x returns for what you would on the stock. How's that sound? Right.

Um, let's keep going here. So, I always tell my students if they're looking to buy at least 100 shares of any stock, they should consider buying deep in-the-money call options instead. So, in this video, I will go over an example with you. I will show you real numbers, how much money you can save, how much your potential return on investment can be. It is so much better than buying shares of stock.

Now, of course, every opt... >> I wholeheartedly agree with this. >> ...option contract consists of 100 shares of stock. So, to compare apples to apples, we will compare it to versus buying 100 shares of stock. I'm going to pick a stock here that's relatively modest in price so you can really see the difference. So, buying deep in-the-money calls will save you lots of money versus buying shares of stock. And the way that we structure the trade is you're going to get almost the same exact movement as if you would if you had bought the shares instead.

All right, so let's just jump right in and talk about what... >> This is exciting, right? This is something I learned from Larry Height. I directly learned this from Larry Height, uh, the very first billion-dollar hedge fund manager, uh, one of the original market wizards. I had the opportunity to work with him and um, specifically, we we went over this concept. He's like, "Listen, if you want leverage, if you want to treat every stock like a futures product, deep in-the-money, long calls are the way to go."

Now, of course, if you ever heard of futures or ever traded futures, you understand that for a very small amount of capital, you can get tremendous leverage. I think like the micro futures. Um, I mean, it's it's unbelievable how much like a micro future you can put up like $50 in margin. Like literally 50 bucks in margin and get somewhere in the neighborhood of like $24,000 of leverage. Like crazy numbers, right? Um, I don't remember what it was on uh the E-Minis, but I think it's something like a,000 for 100,000 of leverage. Crazy, crazy numbers. Um, we're not talking anywhere close to that, but if you want to get leverage on a stock, this is the way to go.

Now, there's there's all kinds of options, right? I mean, literally, like there are all kinds of different strikes that you could pick, right? And it makes such a difference to go over here versus over here. I mean, legitimately, the ones you pick over here are pretty much worthless to start out with. So, you're just throwing your money out the window. These over here already have all the moneyiness inside of them, and you're just looking to capture those gains in the delta moves as it goes. So, this is going to be a lot of a deep dive as well. Feel free to ask questions as we go. I'm here to help you out.

>> Buying deep in-the-money calls are, why do we like to do it? And I will show you the results with real numbers. Okay, let's go.

All right, everyone. Lee Lel here from smartoptions.com. Before we get to that page, let me bring up my cheat sheet. Everyone seems to like the cheat sheets. They say, "Le, please bring back the cheat sheets." So, in the video, I'll give you a little synopsis here: Buying deep in-the-money calls versus buying shares of stock. You can save thousands of dollars by buying the calls versus the stock, slash your risk, and produce triple returns. And in this video, it's almost quadruple returns. And you're going to love what...

>> Oh, okay. Okay. He's using 90 delta, but that's okay. Keep on going. >> ...I'm going to show you here. So, let's just talk about what buying deep in-the-money calls are, the criteria, and then we'll look in a real, we'll look at a real example.

Now, when you buy calls, it is a bullish strategy. You are expecting the stock to go up. So, don't you... >> Right, you want the stock to go up, right? We are not trying to trade a sideways movement in the stock. Palunteer right here is a perfect example of what a sideways movement looks like. Right? It's got this overhead resistance right here. It's really struggling to break through. Even though you've got the 10 over 20 price over 50, you have this overhead resistance that you don't want to fight. These these buyers who bought right here can't wait to sell out. And tell me order blocks don't work. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 candles. 11 candles have come up into this order block and have all been rejected. Can't tell me order blocks don't work. >> ...use it for any other outlook you have for the stock. You must be bullish on the stock. Buying buying calls in general is a bullish strategy. But in this case, we're buying what's called deep in-the-money call options. And that's just a term that describes where the strike price lies in comp compared to where the current stock price is.

So, I've had this question asked of me many times. Where where is deep in-the-money? So, let's let's review. At-the-money is where the price is at. So, if it's 238.60, the closest strike is the 240 strike. If it's at 235.50, the closest strike would be the 235 strike. That's your at-the-money. You go out-of-the-money, and that is when it has not achieved that strike price just yet. So, for example, the 270 strike, that's not happened yet. We're not at 270 or greater yet. So, that's out-of-the-money. In-the-money is something like the 175. We are higher than that price. So, therefore, it's already in-the-money. Okay? How deep is deep in-the-money? That's relative. That's up to you. Generally, I like to say 70, 80, 90 delta. Well, where does the delta come from? Where where you getting that from? On most brokers, good brokers, it's going to tell you the delta right there. There are some brokers that don't. If that happens, go get a new broker. um, because you need this. You need this. Need this.

So, 50 delta is at-the-money. Now, granted, you can see right there it's at 52. It's going to hover around 50. Okay? Every stock, every option chain, every expiration always is going to be right at 50 or at-the-money. Now, what does delta mean? Delta is the rate of change of the price of the option for every $1 change in the underlying stock. So, for example, the 240 strike will increase by 52 cents for every dollar that AMD goes up. Okay? And then the 185 strike will go up by 90 cents for every dollar that AMD goes up. Right? When we live by following the delta over here, we can tell how strong that these moves are or how weak that these moves are. Right? The 290 has a 17 delta, meaning that if this moves up by a dollar, this only goes up by 17 cents. That's it. Versus the other one on the other side is going to go up by 89 cents. Okay? So, you can also use this as an approximation for being in-the-money. Why is it 50 delta at-the-money? Because there's a 50/50 chance it's going to be out-of-the-money expiration or in-the-money expiration, right? We don't really know right now. It's a 50/50 chance at-the-money. Deep in-the-money over here, there's a 90% chance of this one being in-the-money expiration. And there's only a 15% chance of this one being in-the-money expiration. Delta is used for all kinds of things, and it is definitely used for making money. What about 100 delta? 100 delta is straight stock. 100 delta is straight stock. Uh, LC, I'm going to go with LC. Could you choose a lower delta if the break-even price is still the same or always use the 80 delta?

So, I generally live in this area. My my rule of thumb is in this ballpark, but then I will adjust based on liquidity. So, let's use this as an example. I want to see at least 250 open interest. The higher the better, right? This is the number of participants who want to interact with you. That's not the number of contracts. That's saying 949 accounts have said they want to transact with somebody who is at the 205 strike. Okay? Now, they may be holding one contract each. They may be holding 50,000 contracts each. I want to see at least 250 right here. Now, I will also then go to my extrinsic value. My drop-dead will not go over extrinsic value percentage is 30%. And so, if we calculate this, so this is at the 70 delta. It's 9.22 divided by the ask price. This is what you have to pay. Okay? You're not looking for the bid price. You're looking for the ask price. 28. Hang on. I totally jacked it up. Let's do that again. 9.22. 22 divided by 28 gives you 32%. 33%. I would not trade this one. I would then go up one. I would say, "Okay, uh, 88." No, no, no. 7.68 of extrinsic value. 7.68 divided by 31.45. That gives me 24% extrinsic value. This is where I want to live. 20% or so is my ballpark. Sometimes it's less. Sometimes it's 10%, 12%. Sometimes it's as high as 28%. But my drop-dead will not do more than that is 30%. And that is the amount of extrinsic value that will decay over time. Now, the deeper in-the-money you go, look at this. The deeper in-the-money you go, the smaller it is. The smaller it is. Same as out-of-the-money. Okay? It peaks at-the-money. The extrinsic because that's our uncertainty value. Remember, the 50 delta is the most uncertain. It's a 50-50 chance that's going to be in-the-money or out-of-the-money. So, your uncertainty value, which includes your your Vega, your theta, your uh, your Rho, your um, all the Greeks, all of that is baked into your extrinsic value, and it peaks at-the-money. Okay? So, we're trying to go over here and eliminate as much of this as possible because every option, this is the cost of leverage. You can't get around it. Every option has uh a decay of extrinsic value. Every option, every stock, every expiration, every single time will decay in value. I want to decay as little as possible on my investments.

Okay, let's keep going. There's three types of strike prices, and there's three ways to describe them: out-of-the-money, at-the-money, and in-the-money. If the stock's at 100, an at-the-money strike price is like the 100 strike price. It's the closest strike to the current price of the stock. If you buy out-of-the-money call options, the strike price is listed above the current stock price. So, if the stock's at 100, 110 calls, the 120 calls, 130 calls, those are what's considered out-of-the-money. Now, in-the-money calls, which a lot of people never really think about using, have their strike prices listed below the current price of the stock. So, the stock's at 100, we're looking at the 90 calls, 80 calls, 70 calls. Those those strikes are in-the-money. They're below the current price of the stock. And what we're doing is we're talking about buying deep in-the-money calls that have a specific delta.

So, let's just kind of go through the criteria here, and then we'll go through the example. Number one criteria: you have to be bullish, or at least you're bullish for some time in the future. Okay? The the way that we're going to look at it today, we're going to use an almost one-year-out in-time expiration because if you buy a stock, sometimes you need to give that stock some time to move. Same thing with the options. You've got to give the options some time to move. So, we're going to go a little bit further out in time. And in that option with the deep in-the-money call, you want to use a delta that has at least 90%. Deltas range from zero to 100. The higher the delta, the more responsive the option price will be to movements in the stock price.

>> Now, I generally go for 80 delta. And that's okay. If you want to go for 70, 80, 90, whatever the case is that you're trying to get deep in-the-money as possible with the least amount of extrinsic value as possible. And you need to figure out what that is for your own plan. Everyone knows that every option contract has its own price. It's called the premium. And that option price fluctuates according to how the stock moves as well, along with today's expiration volatility. But the biggest driver of how options move is where the stock goes. And when you buy an option, you want bang for your buck. Meaning you want that option price to move when the stock does. So, when you buy a very high delta that's deep in-the-money, only deep in-the-money options have a very high delta. So...

>> Now, remember, the closer that delta gets to 100, the closer it gets to the 100, the more certainty we are that it's going to be in-the-money. But you'll notice that there is a point of diminishing returns, and that is called gamma. It's five deltas change here. Five deltas change here. Four, five, four, three, three, two, one, one, less than one, less than one, less than one, less than one. Right? This is called an asymptotic curve. Let me draw what that looks like here. So, as it gets closer to 100, right, imagine that this is 100 up here. As it gets closer to 100, it's going to do this. It's going to flatten out and never cross 100. Okay? So, if 100 is across the top and 50 is down here, it's going to go up and up and up and up, but it cannot ever cross 100. So, it's going to flatten out as it gets closer to 100. Like I said, that's called the asymptotic curve, and that's exactly how the delta behaves. So, there is a point where it doesn't make sense to go any deeper in-the-money because you're not getting any additional deltas, right? You're going to pay, you know, from here to here at least $250 more because that's the strike and then uh that much in extrinsic value. The market just opened, so it's going to be all kinds of crazy numbers coming through here. Um, so you're going to get uh, you know, one delta difference and it's going to cost you three extra dollars. That's not worth it, right? Where you can get down here three extra dollars ballpark and you're going to get four extra deltas. Way better. Way better. Let's keep going.

>> The 90 delta is going to track that. The option price is going to track the stock price movements by 90%. So, if the stock moves a dollar, your option price is going to move move about 90 cents per contract, or $90. That's 90% of the movement. Okay? So, we want to pick options that have a high delta that are going to move when the stock does. And you pick your expiration date. If you want to give yourself a lot of time for the trade to play out, use a longer-term expiration. Sure, you can use these on one-day expirations, one-week expirations, one-month expirations, but markets and stocks are so erratic in that short of a time frame. You've got to give yourself time to let the trade develop. All right.

>> I'm glad he mentioned that. Now, this is part of plans M and plans A that we are using as fund managers here at Outlier. What I want to do is I want to go into let's go into the Q's. We're in uh we're not in Q's anymore. We just got out of the Q's because of the sell signal that we got. You've got to determine how long your average trade is. If your average trade is 67, 67 hours, if your average trade is 67 days, then you need to trade at least 67 days out in the future on your expirations. But in here in Outlier, which is really nice, um, it actually shows you average holding period 15 days. We can go to a bunch of random ones. Let's go to um, oh, actually, and when you're up here, you can see the uh the returns here. uh signal return 184.35%. Now, you're probably thinking, well, that's not much more than buy and hold at 182. This is where capital efficiency comes in. So, uh, the average holding period is 15 days, right? And the time in the market is 64% of the time. So, 64% of the time we're following. The other 46% of the time we are, or 36% of the time we'd be holding cash in this backtest right here. But we have nearly equivalent returns. Meaning that for every day that our dollar is invested in the Q's, it's got a 1.57x capital efficiency. Isn't that cool? That's how capital efficiency breaks down. For every day that you would be invested with these buy-and-hold signals or buy-and-sell signals compared to buy-and-hold, how much more efficient are your returns? 1.57%. So, even though it says 1.84, if you're only in for 64% of the time, that means the other 34 or 36% of the time you can go trade anything else. You can go trade anything else, like Palantir, right? Like Palantir. So, if we move into here, we can see the average holding period 9 days with a 1.75 capital efficiency. All right. So, if you're trading Palantir, you could even trade it a little bit shorter. Let's go to uh Robinhood. Robinhood has an average holding period of 11 days with a 2.13% capital efficiency. All right? So, you need to know before you get into your trades how long you need the options to work, right? Because you don't want to be buying the one-day and then like, "All right, let's do this thing." When your average holding period is 11 days, 21 days, whatever the case is, you want to give yourself time for it to work. Now, he's saying go a year out. I disagree with that because you're going to pay so much extra. So much extra. We'll we'll get into all the cost of that in a little bit, but um, my wheelhouse is 22 days. 21 days, 22 days. That's where my wheelhouse is. Now, I won't always find the liquidity that I need. I talked about liquidity earlier, so I might go one earlier. Okay, cool. Lots more liquidity here. I might go one later. Uh, not as much liquidity here. So, I'll go with, you know, whichever one has the most liquidity because you cannot get in and out of the same. Or if you if you have trouble getting in, you're going to have all the trouble getting out. And if you can't get out, you're not going to book any profits. So, that is why um, I like to see basically uh a week or so, give or take, greater than my average trade duration is where I'm going at.

>> And you always want to calculate what your break-even is when you purchase an option contract. You take the strike price, you add the option price to it, and that gives you your break-even price on where the stock needs to move to. Okay, those are the criteria. Those are the, you know, the basic facts of how you pick a deep in-the-money option, call option. So, we're going to look at an example with Cisco. And in this particular case, in this example, I'm going to show you how you can save $5,000 by buying the calls versus buying the stock. And you can make uh that'll save you 73%, 73% less money that you have on the line.

>> So, we my example is going to be a little different. Um, it's going to be closer to 90%. Um, just and this is not a banana measuring contest, but this shows you different opportunities to try different uh different ways to trade it.

>> That's pretty impressive. And the returns are going to be more than triple, almost quadruple in this case. I won't say quadruple. It's like 3.75 um times what you can get versus buying shares of the stock. Okay. Now, I'm going to show you the numbers and when we come back here, we're going to look at the what you can do at expiration and your risk management. All right. So, let's just jump right in. Let's go to the first, we're going to look at the stock charts. Okay. So, we're assuming that you're bullish on Cisco. You want to get long Cisco and you're thinking about, should I buy 100 sh...

>> It's kind of funny. Look at this oldie. This was just done 4 days ago. It's got 62,000 views. Huge, huge views on this one. But doesn't this look like it came from like Windows 97? This is like oldie timing right there. >> ...Cisco or should I buy some call options? Now, you know, let's look back at a monthly chart of Cisco. Now, Cisco topped out in in the 2000. The dot-com meltdown has not gotten back up to those all-time highs that it made back in 2000. Cisco right now is very close to $68 a share, trying to get to that 82.

>> I'm glad you put this up here because this is what the market cycle looks like. Let me go to um my market cycle graph real quick. Um, because this is super important, right? We're trying to take advantage of a stage two increase, right? We won't always catch those, but a stage two increase, the stage two run is exactly this area right here. Now, stage one and stage four are the same uh areas at the bottom. This is our consolidation phases. Stage two is the big move up that everybody feels like they're a genius because they bought it and it happened to go up. They caught it on the stage two move. What happens to most people, most people, I would say 90% of people, is they get up to stage three. They have no idea they're in stage three. They don't even know. They don't even know it's happening, but it's happening right in front of them. And then stage four comes and they have anxiety, denial, panic, and they're just screaming, "It should go up. It should go up. It should go back up." Corey says, "Do the eye exam." Okay, you ready? Um, tell me tell me when you see the difference between uh number one and number two. Number one and number two. Number one and number two. And this is not theory. This is reality. I can show you multiple stocks that have it. I can show you Tesla that did it uh earlier this year. It had a 122% up move that 100 100% evaporated. Okay. Uh, someone sent me one the other day that was a, which one was it? I said cake, right? That's working on it. Stage four right now. There's your stage one, your stage two, your stage three, your stage four. How do you identify these? It's not that hard. It's not that hard. You have on your chart three moving averages: a short-term, intermediate-term, a long-term. Your short-term is your 10 EMA. That's it. Your 10-period EMA. Your intermediate-term is your 20 EMA. Your long-term is your 50 EMA. If it's going to be in a stage two uptrend, those must be crossed over bullishly, as you can see right here. But that doesn't mean that every time they cross over bullishly, like here was a 10 over 20 price over 50, that doesn't mean every time that that happens, it's going to go into stage two. It can be in stage one for a minute, going back and forth. But once it gets up to stage three, this is when you're going to see the opposite happen. The 10 goes under the 20 and price goes over under the 50. And that is your big red flag. Your big red flag. If you don't see this coming, that's the top right there. That is your top. Are you going to get out the very top candle? No. Don't even try. It's not going to happen. Leave your ego at the door because you can still get 80% of this move, but you're not going to get the uh the top of it right there. I like to talk about it like it's a sandwich, right? You don't you don't eat the sandwich. You don't eat the brisket sandwich for the bun, right? You don't eat the brisket sandwich for the bun. You eat it for all that juicy goodness right in the middle, right? With the barbecue sauce, the pickles, the uh the the onions, and all that juicy, mouthwatering brisket. Oh man, I need to go smoke me a brisket this weekend. Right. That's what you're here for. The bun is just the container. The bun is just the container, right? You're not going to hit the top. You're not going to hit the bottom. But if you can figure out where the middle of that move is, you can make 80% of it right there. 80% of it right there. Let's keep going. $83 level that it hit back in 2000. So, you're thinking, I it's only a matter of time. I know Cisco is going to break all-time highs. Look at it in just the last month or so. It's gone up really well. I know it's going to do it. So, I want to get long on Cisco. So, we're using Cisco as our as our example here, okay? And we're going to go into the option chain. We're going to look at some options on Cisco, and I'm going to show you the I'm going to show you uh an option calculator as well. Show you how the numbers work, and we're going to break it all down. I have a little uh Excel spreadsheet as well. You're going to see how all the numbers work. So, we're looking at Cisco. Here's the option chain. Here's Cisco tab up here. Call options on uh the left here. Put options on the right, if you're if you're not familiar what an option chain is. And the last price of Cisco in the aftermarket, 68.37, but we're going to round down to $68 a share. At the 4:00 PM Eastern close, it closed just under $68. So, we're going to use $68 as our base. And in the expiration here, we're going out to the June 2026 expiration, 250 days from now.

>> Okay? So, I'm going to do it in my fashion. And of course, what I want you to do is come up with your own plan, right? I've been trading for 16 years. I've worked with five market wizards. Um, my compound annual growth rate over the last 5 years is 44%. You can do whatever you want to do. Okay? Do whatever you want to do. I'm just giving you my uh my experiences. Okay? So, first off, looking at this, Cisco 21 days out does not have enough liquidity for me. So, I would go one closer. And there we're talking. I can already see right there. That's the strike that I'd be going for. The 82 delta. Look at the liquidity right there. Now, there was a question earlier about um if that's number of people or number of contracts. I I am I could be wrong. I consider it as number of people. The reason being is that we as outliers uh we have traded many times and flooded flooded these option strikes with 6, 8, 10x the number of uh of orders going through versus if that were contracts on there, maybe even more. Right? Overwhelmed that that number right there. And yet we've never had a liquidity issue. So I think that's more um people than contracts because honestly, like it's never been an issue. Once you get over 250 or so, you got so much liquidity, it's not even not even a thing. Anyway, this is the one that I'd be going for. Okay, now let's see. I don't know if he's going to talk about liquidity. Hopefully he does because liquidity is ultra ultra important. Um, but he's also going out to 250 days. And like I say, in my trading, and my trading is going to be my own plan. You need to work on your plan. Uh, the open interest is good here. And this is 15 days to expiration. So, if I go into Outlier and I go to CSCO, by the way, you can get access to Outlier a full year for only 82 cents a day. It is unbelievably inexpensive for what it does. And in fact, in the chat, tell me how you've uh how you've enjoyed Outlier. Right. So, average holding period 11 days. So, if our average holding period is 11 days, then 15 days, honestly, that works. Now, if we get too close to expiration, no big deal. If we get within one week, no big deal. We can just roll it out in the future. Okay? We can just roll it out to the next option strike. No big deal. Let's keep going.

>> So, we're definitely giving this trade some time to develop. you know, we got the back and forth, but over time we're... >> So, according to Gemini, this is number of contracts, not number of people. However, I don't know if uh if that's really the case because I have put on many, many, many trades where we have overwhelmed this number and we've been able to get in and get out. Point is, you want liquidity. You want liquidity. >> ...we're hoping or thinking Cisco is going to make a move up and break those all-time highs. Now, when you get into your option chain, you want to make sure that you have the delta column right here. Okay? You have your bid-ask column, which is really the only pricing column that you need. The bid-ask price tells you exactly what the current value of that option is. You don't really need to look at the last column because sometimes those last prices traded, you know, a day ago or a week ago, depending on how uh popular that strike is. So, always look at the bid column, gives you the the up-to-date information, and have your delta. So, all you have to do is you pick your expiration and then you scan over to the delta column and you find the closest to 90 delta. And in this case, we're going to use the 52 and a half strike calls. It has an 88.8% delta. We could have used the 50s, but we're going to go with these 52 and a halfs. And you scan over to the bid-ask. Somewhere in the middle is what's called fair value of the bid-ask spread. So, we're looking at roughly $18. And we're going to use $18.

So, I see I see some things that I could I could help improve him on. Um, this is Lee Lee Lowel. Lee Lel, the smart options seller, which is weird because he's talking about buying deep in-the-money call options. Maybe he hasn't updated his uh his uh his name in years because he has figured out that, you know what, selling options is a loser's game, and he is buying deep in-the-money call options. Now, now let me give him a little bit of coaching. So, Lee, this is directly directed at you, my friend. First off, look at this spread right here. This spread. Let's say you had to be filled at the ask price, 19.45, 19.45. Now, let's say that you had to sell it for whatever reason. It hit your stop, whatever the case is, that you're still going to have to sell at 17.10. That's $2.35. Okay, now, who cares? It's 2.35. I care a lot, right? Because if I bought it for 19.45, that means I just took a 12% loss. I just lost 12% of this value going from buying to selling. I don't want to take a 12% loss for the privilege of buying the contract and then selling the contract. No thank you. So, I like to maintain a 50-cent or less bid-ask spread. Um, I also don't see anywhere on here he's looking at open interest. Uh, he's not looking at any sort of liquidity. That could be a huge hindrance, my friend, if you get deep in-the-money options. Like we're going to look at uh Cisco over here. I mean, there's nobody there to transact with. There's nobody there to transact with transact with. The spreads on these are roughly a dollar wide, give or take on some of these, right? That's still too much. Still way too much. So, if he's going all the way out here to June 18th, there's there's a few people there, right? I mean, anything above the 86 delta, I would not touch. And then we look at the spreads on these. Um, I mean, they've pulled in some, right? This is only a $1.10. This is a $1.15. Still, you're paying way too much for the privilege to buy it and sell it back. That is that is something I would absolutely recommend to Lee is that he starts looking at uh the liquidity and he starts looking at that bid-ask spread because he's going to he's going to give up money. He's he's going to give up money, and I don't want him to give up money. I don't want you to give up money. And 30 per contract as our midpoint. $18.30 per contract. Since every option contract has 100 shares of stock, you have to multiply these numbers by 100 to get your actual cost layout. So, that would be $1,830 in order to buy one of these contracts. Now, compare that to a 100 shares of Cisco at 60 uh, what we say. Here's what we're going to do. And this is not a banana measuring contest. What I want to do is just talk about how I would trade it versus how he would trade it. And you know, hopefully you can take some lessons out of this. All right, so I'm going to do this, and we're going to do um, I'll say Outlier here, and I'll put Lee here. And like I say, this is not a competition. I'm just giving you my perspective versus his perspective. You do you. Okay. Expiration. So, this one has uh 250 days at the time that he was looking at it. The one that I'm looking at has 15 days. So, it's a little light for me. A little light on days, but it'll still work. The strike that I would look at is the 15 days. There we go. The 65 strike with a 79 delta. Okay, so 65 strike, 79 delta. This is I I'm actually really excited about this. Yes, this is Options Deep Dive Thursday. Um, we normally do these on Wednesdays, but today it's a Thursday. I wanted to watch this video, so that's why we're doing all this. So, he is looking at the Oh, he hasn't picked one yet. Let's Let's let him pick one. We're going to use 68 or 68.30. I have to go back and look at the numbers once we get to the spreadsheet, but whatever. It's over $6,800 or at least $6,800 to buy 100 shares of Cisco. One contract of these is going to cost you $1,830. Okay, let's let's also add in here stock, which would be interesting to know.

>> So, right there, you're saving five at least $5,000 versus buying 100 shares of stock. And you have very close to a 90 delta, which means whichever way Cisco stock moves, this option price is going to move at least very close to 90% of...

>> Okay, it looks like he's going to go with the 52 and a half delta. Let me fill this in real quick. He's looking at the 52.5 with a 88.8 delta. I'll give him that. Uh, then we're going to do the ask price because this is what you have to pay. I know he's talking about mid price, but when's the last time in the chat, tell me when's the last time you went to buy an option and they're like, "Oh, you want to buy an option? Ah, I'll make a deal with you. How about we split the difference and get you mid price?" I can't remember the last time. I'm fighting on just making sure I don't hit the full ask price, but most of the time I do. Most of the time I do. So, realistically, we need to be real here, okay? This is not theory, right? This is uh this is practical, right? This is practical that we're talking about right here, right? This is in reality what a fund manager is doing on a daily basis when he trades. So, this would cost me 505.05. This would cost him, don't tell me it wouldn't, 1945. Okay. Uh, let's let's also put in the uh intrinsic value. And so, in this case, we would take the price of the stock. And does it show the price of the stock right here?

>> That's why we want... >> Where's the price of the stock at the time? 68.37. So, we take the current price 68.37 and we subtract the strike price. So, he has $15.87 of intrinsic. And if we do this here for now, the current price is 69.49 equals 69.49 minus the strike is 4.49 of extrinsic or intrinsic, I should say, which uh, let's just confirm. Um, okay, got a little rounding going on, but we're good. 4.49. Now, extrinsic value, this is the amount that will decay over time, right? This is the amount that will decay over time. Extrinsic equals the current price minus intrinsic value equals current price minus intrinsic value. Look at that. Look at that. So, he is paying equals this divided by this, six times more, six times more in extrinsic value. Look, we're getting really deep. We're getting really nerdy. I really am excited about this, by the way. I am I am very stoked about this. Um, the ask price of the stock right now would be 69.49. Okay, let's continue on.

...want to get the 90 delta, and you can see the 52 and a half strike is listed or h is well below the current price of the stock. Okay, so what do we want to do next? We want to compare at various levels of the stock price how much the call option can make versus how much the stock can make. Also, how much you can lose versus how much the stock can lose. And I drew up this handy. Let me get rid of some of these numbers here because they don't matter in this case. Now, what we're doing in this situation is we're comparing buying a 100 shares of Cisco at what? Okay. So, $60.30. That's the that's the price we used in this calculation. So, we're comparing various stock prices here from zero to $140 a share. And we're looking at the actual dollar returns and the and the percentage returns of the stock versus the call option. So, let's look at the downside first at the risk. Now, whenever you purchase an option contract, the most you can ever lose is what you paid for that option.

>> Right? So, let's let's do the math here. Okay, so remember, he's he's spending six times more in his extrinsic value. I'm just going to move this over here. Let's talk about leverage. So, let's do leverage factor. So, we're just going to shorten that to LF for now. The leverage factor. How about lev fact. There we go. I wanted to fill on one cell. Okay. So, the leverage factor means if I am paying 505 and I divide it by the I don't have the current price. Where's current price? Current price is 69.49. And his current price at that time was 68.37. Leverage factor. This divided by the ask price, what we're actually going to pay for it. So, a 13x leverage factor is a 3.5x leverage factor. Look, like I say, this is not a competition. This is not a competition in the least, but mine's better. Anyway, this is not a competition, even though mine is significantly better. Not a competition at all, but I'm trying to get you to learn why deep in-the-money long calls are the best things of all time. Even though this isn't a a competition, and I would be trouncing him in this competition, which I will win the US Investing Championship in 2026 doing exactly this. This is not a competition. The leverage factor on what I'm talking about, 13x versus his leverage factor of only 3.5x. Okay. So, um, I don't want to build his whole table here. Let's just listen to him.

...contract. So, if Cisco goes from its current price of $68.30 down to zero, the most you can lose with the call option is the investment of $1,830. And that is a 100% loss of your investment. Conversely, with the stock, if you bought 100 shares at $68.30, your maximum loss is $6,830. 100% loss. In this case, the option is going to lose $5,000 less. Okay? So, you have $5,000 less dollars at risk. And although both are a 100% loss, you lost $5,000 less. Okay, here's where it gets really juicy, right? How much risk are we actually taking in this trade? So, let's look at risk. Go over here. Risk. So, risk in this trade, if I am taking this and the uh the ask price is this times 100, right? We're only going to look at 100 shares. This is 505 bucks out of my account. This is 1945. This is 3.85 times 300% more, 385% more risk than I would have. This is 639% more extrinsic value than I have. Okay, like I said, not a competition, but mine is obviously better. Looking at this, right, how much risk we have here. Now, let's talk about the stock, right? If the stock is this much. So, stock risk is this price times 100, right? Look at the difference here, right? How much risk are we putting up here? This is the 13x, by the way. This is the 3.5x, by the way. So, for $55, I can have basically $7,000 of stock. That's the 13x leverage factor. In this case, for him and his trading style, even though it's not a competition, but mine is way better, he would spend $1,945 because he's not going to get the mid price, or $6,837 of actual stock. That's at 3.5x. Okay. So, we get um, oh, we're just talking about risk right now. We'll talk about reward in just a minute when it gets there.

>> Then all the shareholders. Now, as you move up in the stock price, you can see the uh break-even for the stock price is $68.30. You can see here zero gain, zero percentage gain. And although at from the strike price and below, you can lose 100% of your money, the the dollar amount is almost the same as what you will lose um from the stock or...

I should say versus the stock up to a certain point. Okay, at break even, this the the option price will break even. The option trade will break even at $70.80 per contract.

Now, I want to show you how you figure out what your cost basis is. You always take the strike price and add the option cost to it. So, in this case, it is the uh strike price is 5250. You know, 52.5 plus 18.3 is $70.80. Okay, want to make sure everyone understands that. We go back to the option chain real quick. So, here it is. 52.5. You add 18.3 to it is 70.

>> All right, let's let's do a break even here. Now, this is break even at expiration. I couldn't tell you the last time I held anything to expiration. Um, you don't and I shouldn't I should say you shouldn't hold anything to expiration because your gamma risk is incredibly elevated. Your gamma risk is how likely is it that the stock or the option that you bought has no value. No value whatsoever. We don't want that. We can eliminate that by just rolling out in time when we get to one week before expiration. So let's do the break even calculation anyway. So, we can do the uh current price plus the uh where's it at? The ask price. That's our break even point. Unless I did something wrong here. Let's just double check.

Is he saying $87? >> Okay. So, if you bought the call options >> Oh, no. No. I did that wrong. I did that wrong. I'm sorry. It's your strike price plus what you paid for it. Uh which would be the ask price. There we go. $71.95. So, I'm not saying this is a competition, but mine's still better.

>> All you would need is for Cisco to get up to $70.80 per share in the next 250 days. Go back to the chart. So, what we're seeing here is let's go to the daily chart here. $70.80 is roughly the high of the the day here. Let's see what the high was. Um the high. So, $70.80 is right here, right where my mouse is. So, if you buy this call option, Cisco has to move right back to here to break even. Anything above that, if Cisco starts going all the way up above $70.80, you're making money. Now, if you bought the stock, your break even obviously is whatever you paid for the stock, which is $68.30 in this case. So, the call option needs Cisco to move up a little bit further than the stock's break even. But once it gets above $70.80, you're golden. they're making.

>> So, I have 71.95. Let's Let's Oh, that's right. Because he's he's not using the ask price. He's using the mid price, which is not a the is not a possibility. I'm just I'm sorry, but it's just not >> just as much money as you would with the stock. Okay. So, I want to make sure everyone understands the break even.

>> Not exactly just as much money as you would with the stock because these have different deltas. Now, let's let's run a little uh let's run a little experiment right here. So, let's say that we got in and this is the price that we paid for each of these different things, right? We paid this much and let's say that now the stock is at uh $75 and then we'll do uh $85, $95. All right, let's see what the um what the gains would look like at that point. So, we would take the current price. I'm sorry. We would take the new price minus the current price. So, this is how much it's gone up. Okay. So, let's lock this onto row 9. And let's lock this on column J. Okay, that should work. Oh, no. That's not what I want. I want that for him because he started at a different point. And then the stock um is still going to be this. So, we'll do this. Okay. Yeah, obviously messed up my sub references. That's fine. We'll get there. Don't worry. So, um, if it goes up to $75, that's a $5 gain, a $6 gain, a 550 gain, right? What is that in percentage terms, right? Oh, wait, wait, wait, wait, wait. I forgot. We need to multiply this by our delta times uh this divided by 100. Okay. So, let me take off these cell references because I totally botched that. Um, F9 is good, but this one's not good. Okay. And then this is going to be a 100 delta. Let me just double check I got my numbers right. Yep. Yep. Okay. So, this is how much gain in dollars we would have on each one of these. Okay. Now, what does that look like in percentage terms? How much percent are we up when it goes from uh current current value up to 75? So the percent would be equals new minus old. Oh wait, wait. We've already done that. That's the 435. So new minus old divided by old. It's an 86% gain, a 30% gain, and an 8% gain. That's how much my option, which this is, listen, this is not a competition. All right? This is not a competition. I don't want you to think that this is a competition, but clearly one of these options is better than the other, even though it's not a competition. All right? Stop saying this is a competition because there's no winners and losers here, except mine is way better. looking at this. All right, that 86% gain if it goes up to $75. Let's say it goes up to $85. All right, let make sure I got all my ask here. Um, current. All right, I think we're good on that. Um, yeah, no, I did that wrong, obviously. Equals current minus uh or 85 was this minus current. All right, there we go. And we're going to lock down this one. All right. So, we have this much going on here. Now, how much percent would we get on this? If it goes up to $85, that's a 307% gain. Even though it's not a competition, that is a significantly more. Even though it's not a competition, that is significantly more gains. Not a competition. Significantly more gains. Now the stock has gone up 22%. The stock has gone up 22%. That is a huge moves. That is that is a giant tremendous amazing move, right? The stock going up 22% is awesome. But let me ask you in the chat.

Oh, basically I am challenging him and everybody if you want to watch me put my money where my mouth is, enter the US investing championship for 2026. I am competing in the options and enhanced growth division. Come at me, bro. It's not even going to be close. I will beat everyone. I want This is my challenge to the entire internet, to Lee, to the vampire, to anybody who wants to put their money where their mouth is. I will be winning the US investing championship in 2026. I will show every single trade live. In fact, you could trade along with me in the invitation only live streams afternoon for just 82 cents a day. So, yeah, this is a competition, but it it's not a competition, okay? I'm just saying.

Um, then let's go to this. All right, so 307% gains versus 22% gains on the stock. Isn't this awesome? All right, so let's do this one more time. Let's go up to the 95. Of course, I got all my cell references all jacked up, but that's okay. We should be good here. So, $26 gain for us all basically. And then here we go. Should be able to copy this down. So if the stock goes up 37% my my option went up 55%. 505%. This is the difference in the 13x leverage. This is the difference in the 13x leverage. This is big banana energy around here. I'm just saying this is the difference in leverage. This is why you want to do it. Okay? Why would anybody want to buy the stock? Why would anybody want to buy the stock when you can go this much higher? This much higher. Okay, huge huge huge returns. Huge, huge, huge returns.

So, with all that out the way, um, we don't have to watch the rest of this video. The point that I'm trying to get across here is that by using a leveraged instrument, you can create masters of the universe kind of money. Leverage of the universe kind of wealth that you wouldn't be able to get otherwise. Right? If the stock goes up 37%. And your option went up 500%. You tell me in the chat, type a number one if you think, "Wow, this actually is really, really cool. I can't see any reason why I'd want to buy the stock." or type a number two in the chat if you're like me. I think I'll just stick with stock. I mean, the option's yours. The option's yours. The option's yours. The option's yours.

So, anyway, I was excited to watch this video. Um, and this is not normal. Thank you. Thank you, Mr. Wild Stimpy Norwood, Mr. Sean. This is not normal. Okay, normal is blowing up your account. And I showed several people who shared their experience uh not blowing up their account, in fact making tremendous money because they understand the power of leverage, the power of options, and the power of using that with outlier, which is going to give you the buy and sell signals, which is going to help you know when to get into the market and get out of the market, right? You need to have a comprehensive game plan. Most people don't. And because most people don't, that's why most people blow up their account, right? So, if you're ready to save time, make money, and start winning with less risk, click one of these two videos, and we'll talk.