why trade ATM options vs OTM

[smallfil]

so u guys saying its not a good idea to check out?

You can check it out if you wish. After all, it is your monies you are risking. Let me just say, that life's lessons could be the best lessons because it leaves an imprint on your mind. You asked for advice and was given advice. Of course, you are not obligated or forced to follow someone's advice but, you make your choices in life. We already gave you the information you asked!

 

[Tibster]

I check the zero-cost backspread P/L graph to figure the strike. For example, stock at 100, 100 strike is $3, 110 strike is $2. Zero-cost backspread is 1 ATM for 2 110. The 2 110 will break even with the ATM at 120. If stock is expected to be over 120 at expiration, then the 110 options will be more profitable, else they provide less ROI than the ATM calls.

 

[OptionsOptionsOptions]

RE: why trade ATM options vs OTM

• Depends on how you think the stock will move while your trade is open.
  
• Depends on how much money you want to risk.
• $1000 stock or $100 stock.

 

[beerntrading]

i have been trading on a demo account for a long time and now its been a month that im in the real money which is going good, but i though of an idea why should i buy a ATM option that costs 3* more then an option OTM with the same expiry date ? if my goal is to just wait for the value of the option goes up so it will also go up if the market moves up 1% or 2% and my risk and exposure is much less then buy-in ATM options what do u guys think about ?

If it's a demo, do two things for yourself. Trade some consecutive strikes, both ATM and OTM long (i.e. JPM $107 and $108 calls). Also trades some calendars (particularly around earnings). Getting familiar with how they move relative to each other is the key to selecting the right strike and expiry for any given move.

One thing that factors into this that a demo account won't show you is liquidity. ATM and near the money options tend to be a little bit more liquid, and OTM more so than ITM. For certain moves (i.e. range bound oscillation) I will purchase an OTM strike that is my target price to sell when it is ATM. Good fills in this trade make the difference in profitability for the day-to-day grinding and every now and then you get lucky and gap out of the range and get a big winner.

And there are definitely long strategies that are statistical profitable, but you couldn't be very choosy in which orders you took and you'd run out of counter parties if your orders were big.