I wud like 2 take a different view here...just 2 confirm if my view can sustain intense scrutiny of the pros out there..if no I will change my opinion..
1.""Why do you use naked itm options for directional trading instead the future or the share ?""
I will prefer stocks(never traded futures..as they are only 4 the month) to DITM options anytime.
Delta: DITM:0.80(assuming),Stock:1,for directional plays 1 will be always better than 0.80/0.85,(ATM Delta :0.5, very high time component,never will trade it),
Gamma: balanced 4 both,
Vega:
DITM:very high,stock:0, with stocks u can BUY w/o worrying abt volatilty,especially if ur wrong in predicting it.., and u get more opportunities even in high IV environment..
Theta:
DITM: Rapid -ve value as approaches expiry,at expiry u will lose ur entire option value if wrong, with stock u dont lose anything due to theta and hold right to expiry...AND BEYOND THE MONTH if NEED BE..u will never be right about the direction but short of time....
With stock ur only worried abt Delta, with options(especially DITM) u lose from Delta,Gamma(adverse),Vega and Theta...
Disdavantages of stocks:
1.No leverage,
2.Faster movement( bad if against u),
My choice is stocks,if someone is so sure of predicting direction,and can also predict Vega and balance the Theta, then he is GOD...then u shld also be able to predict the magnitude of the move and select the correct OTM strike..more bang 4 the buck...
This applies only 2 stocks, with futures options r better for leverage...
Kindly correct me if I'm wrong...just cant digest DITM buying..u dont trade options directionally like shares..u hedge or u sell them IMHO...