No. of Recommendations: 4
A DITM call, is darn close to buying shares on margin.
The deepness that, IIRC, Jim mentions results in about 2X leverage. A few papers I have read say that the optimal leverage is just a little above the 2X.
When I look to buy DITM calls on BRK I don't even glance at the delta, just the leverage number and the implied interest rate, to decide which strike to buy.
read the horror stories of margin calls before you go further. LOTS of people lost more than the entire value of their brokerage account and did in fact have to raise money to give to the brokerage to climb back up from zero.
There was a case back in the 1999/2000 tech crash. This lady used high margin and made a huge amount of money, maybe around $200,000 realized profit, all short term taxable. Early the next year the market crashed, she got a margin call and got wiped out. Then she went to file their taxes and the gain was the previous year while the loss was this year, so the loss didn't offset the gain in the eyes of the IRS.
