The Deep In-the-Money short call can be used as a substitute for short stock, but there is no real advantage to doing so.


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Strategy: Deep In-the-Money Short Call

Deep In the Money Short Call Option Graph

The Outlook: Bearish.

The Trade: Sell a deep In-the-Money Call with a couple months or more to expiration.

Gains when: Stock falls.

Maximum Gain: Limited by strike price sold.

Loses when: Stock rises.

Maximum Loss : Unlimited.

Breakeven Calculation: Strike price sold x number of shares represented + initial credit.

Advantages compared to short stock: Less margin required.

Disadvantages compared to short stock: Limited life.

Volatility: after entry, an increase in implied volatility is negative.

Time: after entry, the passage of time is positive if the stock falls.

Margin Requirement : The short call is considered "naked", and the minimum margin would be 10% of the strike price of the short call times the number of shares represented, but probably more.


Synthetic Equivalent: Short Stock and Short Put at deep OTM strike price. (A Covered Put.)


  • This "short stock substitute" strategy takes advantage of the fact that Deep ITM Calls have a large Delta. This means the Short Call will lose value almost as fast as the short stock would on a drop in stock price. And since you are short the Call, you want it to lose value.
  • This strategy should only be used if you are very bearish on a stock. If the stock rises, your dollar losses will be just as large as if you were short the stock.
  • This strategy is presented just to show it is possible. In actual trading, there is no real advantage to shorting a Deep ITM Call as opposed to shorting the actual stock. Shorting the actual stock will bring more of a credit into your account.
  • The short strike will limit your gains to that strike price. So if you thought the example stock might drop to 35, then you should sell the 35 strike call.


  • This strategy can have dollar losses as large as if you actually shorted the stock. For this reason, you should always have a stop loss, just as you would if you shorted stock.


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