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How to Choose the Right Call Option

Published July 3, 2025

If you're interested in using call options to gain long-term exposure to the stock market with leverage, you're not alone. At BackAlpha, we've explored this approach extensively — both through data and in our own portfolios.

However, not all call options are created equal. To build a successful long-term strategy using calls, you need to make three critical decisions:

  • Which stock or ETF to use as the underlying
  • What expiration date to choose
  • How to select the right premium, strike price, and leverage level

In this post, we’ll walk through each of these components — sharing what has worked best for us and why. The goal is to help you apply leverage wisely, with less stress and more confidence.

1. Choose the Underlying Stock

The first and most fundamental decision is choosing the asset you want to gain exposure to. For our strategy, we overwhelmingly favor SPY — the ETF that tracks the S&P 500.

  • Broad Market Exposure: SPY reflects the entire U.S. market. While individual stocks can soar or crash based on earnings, lawsuits, or leadership changes, SPY is driven by larger macroeconomic forces. That makes it more stable, more predictable, and more suitable for a long-term leveraged approach.
  • Exceptional Liquidity: SPY is the most traded ETF on the planet. Tight bid/ask spreads and massive trading volume ensure low transaction costs and minimal slippage — especially important when you’re dealing with options.
  • Daily Expiration Options (0DTE): SPY offers options expiring every trading day. Most stocks offer only weekly or monthly expirations. SPY’s daily expirations give you maximum flexibility when managing your position, especially during volatile periods.

Why Not Choose QQQ?

QQQ, which tracks the Nasdaq-100, is another popular choice. Its tech-heavy weighting has helped it deliver eye-catching returns during strong bull markets, especially in the past decade.

However, based on our analysis, SPY holds several key advantages:

  • Superior Liquidity: SPY trades around 83 million shares per day, compared to about 53 million for QQQ. And because SPY shares are more expensive, the total dollar volume is even more skewed. That extra liquidity means SPY is favored by institutions and high-frequency traders alike.
  • Long-Term Consistency: SPY has actually delivered slightly better annualized returns over its full history, even though QQQ has had spectacular bull runs. Check out the data for yourself: Buy and Hold SPY vs Buy and Hold QQQ.
  • Option Efficiency: QQQ’s higher volatility leads to higher premiums — which means faster time decay. When you're buying call options, especially deep ITM, SPY’s lower extrinsic value can work in your favor.

Cons of Choosing SPY

  • Limited Upside Potential: SPY won’t deliver the 10x or 20x returns that some individual stocks can. If you’re chasing explosive growth, SPY may feel “too slow.”

Still, for a leveraged long-term strategy, we believe the predictability and efficiency of SPY far outweigh its limitations.

2. Choose the Expiration Date

Once you’ve picked your underlying, it’s time to choose the expiration date of your call option. We prefer the longest expiration available, typically 2–3 years out.

Why go long? Because it gives you more control, more time, and fewer headaches. Here’s what we mean:

  • Reduced Frequency of Rolling: With short-dated options, you constantly need to “roll” your position. That means selling the current option and buying a new one — again and again. Long-dated options dramatically reduce this burden.
  • Slower Time Decay: Time decay (theta) accelerates as expiration nears. Long-dated options — especially deep ITM — lose extrinsic value at a much slower pace.
  • More Room for Recovery: Markets don’t move in straight lines. If SPY drops for a few months, a long-dated option gives you time to wait it out. A short-dated option might expire worthless before you recover.

Cons of Choosing Longest Expiration Dates

  • Higher Initial Premium: Longer-dated options cost more. If you want to maintain the same leverage, you might need to choose a higher strike price (lower delta), which adds more extrinsic value and less directional sensitivity.
  • Sensitivity to Interest Rate Changes and Volatility (IV): Long-dated options have greater vega (volatility sensitivity) and rho (interest rate sensitivity). If implied volatility decreases or interest rates fluctuate unfavorably, longer-dated options could lose significant extrinsic value even if SPY’s price remains stable or slightly increases.

That said, for long-term strategies with fewer decisions and smoother drawdowns, long expirations are our clear choice.

3. Choose the Premium / Strike Price / Leverage

The final step is choosing your strike price — or more precisely, choosing your desired leverage. Once you decide how much leverage you want, the corresponding premium and strike price can be determined accordingly.

Here’s how the relationship works:

Leverage Premium (% of stock price) Example (SPY = $618)
2x ~50% ~$309
3x ~33.3% ~$206
4x ~25% ~$154.50

Once you've chosen a target leverage (say, 3x), the premium is simply calculated as: 

  Premium = Stock Price ÷ Leverage

So if SPY is trading at $618 and you want 3x leverage, your premium target is about $206. That part is pure math.

The next step is to check the options chain to find a strike price whose premium is close to that target. For 3x leverage, you'd look for a long-dated call option priced around $206. Depending on market conditions (like implied volatility), the exact strike may vary slightly.

Based on our data and experience, we recommend aiming for 3x to 4x leverage. This strikes a healthy balance between return and risk:

  • Less than 3x: The leverage is too mild. Your return may not justify the effort compared to simply buying shares.
  • More than 4x: Although still ITM, these options have lower delta and higher time decay. You’ll feel more volatility and likely suffer worse drawdowns.

As always: if you're not seeking leverage, don’t use call options. Just buy the stock. Calls come with time decay and forfeit dividends — costs that only make sense when you're aiming to amplify returns.

Conclusion

The right call option can be a powerful tool for long-term investors who want to apply responsible leverage. But the wrong choices — wrong expiration, wrong strike, wrong underlying — can lead to frustration or unnecessary risk.

At BackAlpha, we’ve designed our tools to help you test these choices with real historical data. You can model SPY call strategies and evaluate how leverage would’ve performed through decades of bull and bear markets.

Explore now: visit the Crossover Strategy, SPY Buy & Hold, or QQQ Buy & Hold pages.