i'm going to ask some noob questions and you're not going to make fun of me

[OptionsOptionsOptions]

So is that safer then? And couldn't you buy more of them for the same price? I'm just making these numbers up, but say a 95 call is 10, an 85 call is is 8.50, so you could pay 1000 for 10 95 calls, or 1000 for 11 85 calls, so if price drops to 80, which would be wroth more?

It's better to buy as close to ATM as you can afford. More contracts further OTM is not the way to go.

 

[caroy]

further OTM is not the way to go.

Unless you know something good like reddit is going to squeeze something.

 

[IronFist]

Why is it better to buy as close to ATM as possible?

Is deep OTM expiring ATM worth less than ATM expiring deep ITM?

 

[Adude81]

Why is it better to buy as close to ATM as possible?

Is deep OTM expiring ATM worth less than ATM expiring deep ITM?

You are forgetting to consider time. Options have an expiration date. You will often be right in your assessment of direction, but not give yourself enough time for it to happen before your option expires. Most times it will take longer to profit the farther out of the money your put is giving a greater chance you run out of time first

 

[cesfx]

And delta... The further otm, the slower the position moves in your favour in relation to underlying price move.

 

[caroy]

Is deep OTM expiring ATM worth less

Take out the space between worth and less and you'll have the value of a deep OTM option expiring ATM. = worthless

 

[monee]

I would only buy the 95 put - If you are right about direction that's were you will make the most amount of money.

Would think further OTM will have a lower win rate ,but when the big move does happen will be a much larger % gain.

 

[IronFist]

So there's a stock at 100.

Buying x dollar amount of 95 put and having the stock go to 40 would be worth a higher amount than buying x dollar amount of 40 put and having the stock go to 40?

 

[ironchef]

So there's a stock at 100.

Buying x dollar amount of 95 put and having the stock go to 40 would be worth a higher amount than buying x dollar amount of 40 put and having the stock go to 40?

Probability and expectancy. Which one has the higher probability of turning a profit and which on has a higher profit expectancy?

We are not going to make fun of you. I was you back in 2013. If you are a retail like me and are serious about trading options, you do want to read up on the mechanics and theory of options. You also need to understand the concepts of probability and expectancy. Books by McMillan and Hull are good books to start. I still read them now and then to refresh my understanding.

Once you have a basic understanding @OptionsOptionsOptions' answer will be clear to you.

Good luck.

 

[IronFist]

Like having lower expectancy means higher profitability right?