. In the Money Options: Definition, Call & Put Options, and Example.
What happens when ITM options expire? When an ITM (in-the-money) option expires, the option holder will receive the underlying asset (e.g. shares of stock, futures contract, etc.) from the option seller. If the option is European-style, then the option can only be exercised on the expiration date; if it is American-style, then the option can be exercised at any time up to and including the expiration date. When can you sell deep in the money calls? You can sell deep in the money calls when the market is bullish and you expect the underlying asset to rally. This strategy is used to generate income and to hedge a long position in the underlying asset.
Is OTM better than ITM?
There is no simple answer to this question, as it depends on a number of factors, including the trader's objectives, market conditions, and the specific options contracts involved. However, in general, options that are "out-of-the-money" (OTM) may be more attractive than "in-the-money" (ITM) options for certain types of trades.
Some traders may prefer OTM options because they are typically cheaper than ITM options, and thus offer a more attractive risk/reward profile. OTM options may also be less susceptible to the effects of time decay than ITM options.
However, it is important to note that OTM options typically have a lower probability of expiring in-the-money than ITM options, so they may not be suitable for all types of trades. Ultimately, it is up to the individual trader to determine which type of option is more suitable for their needs.
What happens to ITM calls on expiry?
When an ITM (in-the-money) call expires, the owner of the call will exercise their option and purchase the underlying asset at the strike price. The writer of the call will be obligated to sell the underlying asset to the call holder at the strike price.
Is it better to buy options in the money? There is no definitive answer to this question, as it depends on a number of factors, including market conditions, the strike price of the options, and the investor's own objectives and risk tolerance.
Generally speaking, options that are "in the money" (ITM) are more expensive than those that are "out of the money" (OTM), because they have a higher probability of expiring in the money. This means that ITM options will typically have a higher Delta, which is the measure of how much the option's price will change in response to a 1 point move in the underlying security.
However, ITM options also have a higher theta, which is the measure of how much the option's price will decline over time as it approaches expiration. This is due to the time decay factor, which is a natural phenomenon that affects all options.
Therefore, whether it is better to buy ITM or OTM options depends on the investor's objectives. For example, if the investor is looking to profit from a short-term move in the underlying security, then ITM options would be a better choice, as they will have a higher Delta and will be less affected by time decay.
On the other hand, if the investor is looking to profit from a longer-term move in the underlying security, then OTM options would be a better choice, as they will be less expensive and will be less affected by time decay.
Ultimately, it is up to the individual investor to decide which type of option is best suited for their needs, based on their own objectives and risk tolerance.