I wrote quite a bit about Lenny Dykstra on LongShortTrader.com, and to this day, I receive questions about Lenny’s deep-in-the-money call option trading strategy.
In fact, Just last week someone asked me to suggest an online broker for trading deep-in-the-money call options.
First of all, let’s define the term.
Call options with exercise prices below the current stock price are considered to be “in the money.” A deep-in-the-money call has an exercise price that is significantly below the current stock price.
For example, if Apple (AAPL) is trading at $200, all options with strike prices below $200 are in the money. There isn’t a standard definition of what makes a particular in the money call option “deep,” though I personally consider strikes more than 30% below the stock’s current price to be deep in the money.
Any online broker that has reasonable options commissions is perfectly suitable for trading deep-in-the-money call options. Making straight purchases of calls and puts (rather than spreads or anything with multiple legs) is pretty simple and doesn’t require a supercomputer or rocket scientist to get you decent trade executions.
I personally trade with thinkorswim, but TradeKing or Scottrade or optionsXpress will work just as well.
Just keep in mind that if you’re stepping into deep-in-the-money calls, you’re looking at taking on some serious risk. And if you don’t have an account with an online broker at all yet, think about whether options trading is right for you, period.