Alphabet (NASDAQ:GOOGL) has had a strong 2025, growing 69% year-to-date, only behind Broadcom in the trillion-dollar club. The industry giant is now valued at $3.8 trillion, making it the third-most-valuable company in the world.
But does it still have room to grow?
Well, Wall Street seems to think so, rating the stock a “Strong Buy” and pegging it with a $400 high target price- or a potentially 25% higher from today's prices. The stock also has the fourth-lowest forward price-to-earnings ratio among the top companies, indicating how “cheap” it is relative to its earnings.
Now, call me biased (as I've owned the stock for more than a decade), but Alphabet’s continued performance and relatively cheap valuation make it my favorite Magnificent 7 stock, and I’m willing to bet big on it, at least in a way that gives me the best chance of success. In this case, that means deep-in-the-money LEAPS long calls.
What are deep in-the-money (ITM) LEAPS calls?
I know that this is a mouthful, so let me break the concepts down into their constituent parts.
A long call is an options contract that gives you the right but not the obligation to buy 100 shares of a stock at a specific price (strike price) on or before the expiration date.
In-the-money on a call option means the stock has intrinsic value, i.e., its trading price is above the strike price. The intrinsic value is essentially the actual dollar value of an options contract, calculated by subtracting the strike price from the current trading price.
“Deep” in this context means that the option has a higher delta. Delta is the options Greek that measures the expected change in an option’s price relative to every $1 of the underlying stock’s movement. Deep ITM calls usually have a delta of 0.85 or higher, which means the option premium is expected to move by 85 cents for every $1 move of the underlying, giving you, the trader, an almost stock-like exposure.
Lastly, LEAPS, or long-term equity anticipation securities, are options that expire one year or more after the purchase date. That means the option has less exposure to time decay, or theta (another option Greek), and loses less value for the majority of its active lifespan.
Overall, deep ITM LEAPS calls offer a combination of high intrinsic value, strong price sensitivity, and minimal time decay. However, there’s no such thing as a free lunch in options trading, so a deep ITM LEAPS call can be quite expensive.
Deep ITM LEAPS call for GOOGL
Now, to look for trades, go to Alphabet’s stock profile page, then look to the left side of the screen and click Long Call/Put.
From there, you can change the expiration date. For this instance, I am going to look for trades that expire two years from now. So that’s Dec. 17, 2027.
Next, I’ll scroll down to look for 85-delta trades, like this one right here:
Pulling up the P&L chart, we can now see the complete trade details.
Trade breakdown
According to the screener, you can buy a 215-strike GOOGL long call for $138.65 per share or $13,865 per contract. This LEAPS call is 33% in the money, with a breakeven price of $353.65. That means if Alphabet stock trades at $354 or higher at any time before Dec. 17, 2027, your trade becomes profitable.
However, that’s only assuming you’ll exercise the contract, buy 100 shares at $215, and sell them at the market for $354.
The optimal way to profit from long calls is to sell while they still have time left before expiration. This way, you can take advantage of any extrinsic value that remains.
To illustrate, let’s say that GOOGL reaches $400 in Dec. 2026. Your call now has $185 in intrinsic value or 46% in the money. But don’t forget, you also have one more year before the contract expires.
So, for fun, let’s look at current trades that are near 46% in the money and expire in one year. This 175-strike call fits the criteria nicely:
Now, let’s break down the premium between intrinsic and extrinsic value.
Currently, the option is trading at $155.65 per share, while it is $145.21 in the money. That means the premium is 93.3% intrinsic and 6.7% extrinsic value.
This means that all things being equal, you could expect around a 7% premium bump if GOOGL reaches $400 in December 2026 and you sell your 215-strike call, which has one more year left before expiration.
But of course, these numbers are subject to change. Remember, extrinsic value is also affected by time until expiration, volatility, and moneyness, among other factors.
And besides, this assumes GOOGL will only go up by 25%. If it can replicate its current one-year performance (69%), you'd be looking at a substantial profit.
Final thoughts
Deep ITM LEAPS calls offer substantial potential profit at the cost of high initial premiums. However, you do get to enjoy slower time decay and higher exposure dollar-for-dollar.
Still, every option trade has its risks, so it’s important to assess your market outlook, available capital, and risk tolerance before jumping into any investment.
On the date of publication, Rick Orford had a position in: GOOGL . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
More news from Barchart
