Trip, as usual, you prove you know just enough to get yourself (but, hopefully not others) into trouble. You obviously do not have a full grasp as to how margin works, nor do you truly understand how risk works.
If I had a dime for every time you used the quote from the book you read that made you think you understood what you were talking about, I’d be able to have a nice dinner. You have a visceral aversion to “permanent loss of capital” and if you want your best shot at that, look no further than buying long calls or puts. Not only do you have to be directionally correct, you also have to nail the time frame. If you want long calls as a stock replacement you must go MUCH deeper in the money than 20% with LEAPS. You are looking for a 1 delta, which is sub $100 strike in 2023 and very expensive. Like $15k, expensive. What’s more likely? A long call expiring worthless or one of the stocks you dub “a story stock” going to zero? Again, you don’t fully understand risk or probabilities.
If you buy a call for $60 ($6000) and you aren’t lucky enough to have time and direction right, you will most definitely have a :::gasp:::: permanent loss of capital. If you sell a put, you MAY be assigned, and you MAY have a margin call (depending on if you’re in a portfolio margin account or a regulationT account), but you can also turn around and sell the shares back at a loss much less than a 100% loss should your calls expire worthless.
You tell me what is a greater risk; a 100% loss of capital from a long call expiring worthless or getting assigned a stock at $200/share when it fell to $150 and you sell it back when assigned. Do the math and get back to me.
If you view a permanent loss of capital as your greatest risk, then you are completely contradicting yourself. There are many more opportunities to take stock in companies you like with a short put at a reduced basis or, roll contracts indefinitely and generate significant income while lowering cost basis.
Back to my original point, you think you know more than you do, and that might be far more valueable advice than what you read in a “value investing” book. You not only think you know the actual value of a multi billion dollar corporation but you think you can peg a share price and a date. Why don’t we call it what it is; a gamble and I take them all the time. The difference is that I accept it as a gamble and risk only a fraction of a % of my NLV.
Options need not be a gamble, you can certainly play probabilities and use the leverage to your advantage like JamesBond mentioned.
I suggest anyone reading trips post approach with extreme caution. While he SOUNDS like he knows what he’s talking about, seasoned investors know otherwise. If you want to learn how to trade options in a way that can be very lucrative, leave here and dig into
tastytrade.com materials.