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Sorry that was a typo, I meant OTM vs ITM So basically you're saying that you can "leverage" more with OTM than ITM?
by platz 6y ago
Sorry that was a typo, I meant OTM vs ITM
So basically you're saying that you can "leverage" more with OTM than ITM?
- f430 6y agoyeah so if your options are ITM then your stock doesn't need to move that much to profit but the downside is its very expensive. OTM is cheaper but much more riskier because your stock has to travel further. No you would leverage more with OTM because you can buy a lot more OTM with the money you spend on ITM. This is a gross generalization, when I say "riskier" it is purely from an academic point of view. In reality there are so many other factors at play, fundamentals, theta, delta, vega, etc. I can't really explain it because I don't understand their exact relationships but in general when you have an option position the clock is against you and so many other factors that has to go right. It's like in Casino Royale when that Marilyn Mason look-alike invests African warlords money on an airline company on far OTM near expiry options and then launching an attack in the airport. The SEC has a safeguard against these things. If you have large far OTM options near expiry and the stock dips the next day, expect a visit from the SEC or FBI.