Difference Between In the Money & Out of the Money Options
First of all, There are 2 terms you should be aware of: Spot Price & Strike price. A spot price is the current market price of the underlying asset & Strike price is the Expected or desired price to execute an option contract. You must have come across these terms while using automated trading apps. Detailed info below :

ITM & OTM Contracts

In-the-money options and out-of-the-money options are basically 2 contract types. Whether a transaction is In a money option or out of the-money option, It strictly depends on Strike price & spot price values.

For Call Options: If the spot price of the underlying asset is higher than the strike price, it is called the ‘ In the money ’ option. But, If the spot price is less than the Strike price, it is called the ‘ Out of the Money ’ option.

For Put Options: It is pretty much the reverse of Call options. If the strike price is higher than the spot price, it is called the ITM (In the money) option. Whereas If the spot price is higher than the strike price, It is called the OTM option. Vice versa of the ITM scenario.

The Intrinsic Value Associated

Intrinsic value is nothing but the Current value of any particular option. Intrinsic value helps decide whether to jump into buying an option or not. Intrinsic value is basically the Price that the Buyer will have to pay if He/she decides to buy it right now.

In Money, contracts have Positive intrinsic value. Whereas Out of Money (OTM) contracts have Zero Intrinsic value. Positive intrinsic value is one of the main reasons why ITM options are the Best & First choice for Buyers looking to make an investment with a Low-Risk strategy.

If you try using the Automated Algo trading app - ITM options will be amongst the Top-recommendations for Investors who do not want to take too much risk. Automated trading apps are one of the best ways to go about ITM-OTM options trading strategy.

OTM Options Are BEST For Buyers

If you don’t want to take much risk while trading, then you should definitely go for out-of-the Money options. Why? Simply because OTM contracts have a much lesser premium amount to pay. So you can enter an Option contract with very less amount at risk compared to ITM, or ATM options.

Some might suggest ATM options are a better pick than OTM for buying. Sure they are. But ATM options have a slightly higher premium amount to pay compared to OTM options. So if you have a decent budget, go to ATM. But, If looking for low investment amounts - Go for OTM without a second thought.

Experts recommend Using an Automated Algo trading app while Buying/selling ITM, ATM, and OTM options. Transactions happen ever so faster along with Security & ease. Various customized individual trading bots available within the bot Trading marketplace give the trader an extra edge over All the traditional traders.

Best Options For Sellers :-

In order to take full leverage of the Market ups & downs, OTM Options would be the best choice. Reason - Let’s say the current market price is 500 rupees. If you sell for 500, you make a profit of 100. But, you can afford to hold on to that option if there’s a good chance of an increase in price.

With OTM options, you can reap the benefits of market price movements. Because the current price (spot price) is higher than your strike price (desired selling price), Your option contract will not get exercised.

Allowing you the leverage of being able to hold on to your Option assets & contract not being exercised. So you get that cushion as a Seller and can hold onto the OTM contract and can achieve the best gains when exercising your Call Options.

(Smart Tip: The trading bot marketplace is gaining popularity & is being termed to be the future of trading. Coz trading bots provide a customized, faster, and much more efficient trading experience. Do try out once & at the earliest).

Read More: How Profitable is Algorithmic Trading in 2022?

Which Of ITM & OTM Makes More Profit ? :-

Short Answer: OTM options give higher percentage (%) returns. But, they are much riskier as well. ITM options can give stable-small profits. Read the slightly longer answer for more Clarity :

Long Answer: ITM options have ‘Intrinsic value’ at their core, which makes them highly secured against high volatilities. The prices of ITM options remain in a certain range. Of course, it will go up & down with time. But, they won’t go 50% up or down in a very short time period.

OTM options are like riding crazy bulls. Can give you immense returns in a short period of time. But they are much riskier because of having no intrinsic value associated with them. Affordable for buyers? Sure they are. But the big movements can Make or break your portfolio.

Conclusion

As often suggested by Automated trading apps, OTM options are great for ‘Small Budget’ investors. They can also give huge profits with one movement upside. But always be cautioned as they can wipe away your Portfolio with one downward movement as well.

ITM has a slightly higher premium amount while buying. But they are much more stable & can be reliable for Secured profits. Small profits, But secured ones. So a smart decision would be to nicely divide your portfolio amongst both ITM & OTM options.

An Automated Algo trading app with a built-in Trading bot marketplace is a great way to practice Options trading & take optimal benefits of the market. So hop on to your Trading bots and Try reaping the maximum out of individual benefits that both ITM & OTM has on offer.

Difference Between In the Money & Out of the Money Options
SpeedBot Team 20 September, 2022
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