I'm considering an option's strategy that would allow me to capture the upside to stock ideas (e.g., smaller cap companies) in cases where I would prefer to not purchase the stock, as I already have quite a few stocks especially in the technology sector. For example, I was thinking of buying a few call options for CLBT at a strike price of $20, expiring Jan. 16, 2026 for around $0.65. I would sell to close the options a bit ahead of the expiry date if the stock price is above $20. I have previously sold puts for things like AXON and CLS but then the stock price took off and I was left with a reasonable premium but nothing compared to the price appreciation. I would appreciate any thoughts you have about this idea. Also wondering what your top 5 ideas might be for the US market with a strike price/timeframe for the option.
Thanks so much,
Lisa
There is a big difference between selling puts and buying calls. 95% of investors who buy call options lose money. We are not fans of securities that have a time limit and can expire worthless. Yes, call options can provide significant leverage and upside--when they work out. We are comfortable with a covered call strategy. But buying call options directly is pure speculation really. In the example in the question, CLBT has to go to $20.65 to break even (we will ignore any possible commissions for now). That's a 26% gain needed from current levels, in 4.5 months. Annualized, one needs more than a 50% gain just to break even. Is this possible? Sure. Is it likely? Maybe not. Are such moves highly repeatable with different options bought on a regular basis? Very likely not. If one believes in a stock, we would prefer just going long the stock and getting that 'planned' 50% annualized return. If it doesn't work out, at least one has the stock still and not a worthless piece of paper (the expired option).
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in AXON, CLBT.