Summary
TLDR: Deep out-of-the-money (OTM) call options are cheaper but can lead to big profits if the market exceeds the strike price before expiry, similar to buying lottery tickets. Loss is limited to the premium paid for the option.
Key Points
1. Deep OTM calls are cheaper than those at strikes closer to and below the going market rate.
2. Outright purchases of deep OTM calls are often considered analogous to lottery tickets.
3. The loss is limited to the extent of the premium paid to purchase the option, but, in theory, profit can be huge if the market exceeds the strike price before expiry.