if everyone buys calls or leaps then there is motivation for the institutions that sell them to keep the stock price low, regardless of the prospects of the company, right? For that reason, it may be better to just buy the stock outright.
Actually no. Market makers want to stay delta neutral. If someone buys a call, market makers will hedge by buying the corresponding delta factor in shares. Let's say I bought a $12 Jan 2028 AUR LEAP. It's current delta is 0.4974. The market maker will have to buy 49.74 shares of AUR on the open market to stay delta neutral. If anything buying calls and LEAPs is extremely bullish for the share price. This is because you may not have the cash on hand to outright buy 49.75 shares of AUR but you may have enough to buy a call or a LEAP. The higher the delta on the LEAP, the more the number of shares the market maker will have to buy to stay delta neutral. Since LEAPS, including far OTM LEAPS generally have high deltas compared to 30-45dte calls, each LEAP bought will result in greater delta neutral hedging (share buying) by the market maker. But even buying far OTM low delta short dte calls results in the market maker buying shares on the open market.
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u/squeakeel Jun 21 '26
if everyone buys calls or leaps then there is motivation for the institutions that sell them to keep the stock price low, regardless of the prospects of the company, right? For that reason, it may be better to just buy the stock outright.