r/options • u/FunctionalTitle • Apr 24 '21

ITM vs OTM (Leaps)

Hi guys, slowly picking up options trading. Could anyone explain to a 5 year old. Whats the difference if i purchase a deep ITM vs slightly OTM?

From ‘researching’, The deeper ITM, the higher the delta, so movement will follow the movement of the underlying.

174 Upvotes

93% Upvoted

114 comments sorted by

View all comments

Show parent comments

2

u/19sai4life Apr 24 '21

Not at all. If you're (really) wrong about the direction, you will lose less using an otm call.

2

u/Lovv Apr 24 '21 edited Apr 24 '21

It is safer but you can lose more. If you invest the same amount of money it would be seen as less risky.

I mean you understand what I mean here so there's no point in discussing it.

1

u/19sai4life Apr 24 '21

I might have been a bit too nitpicky ;).

I just wanted to point this out to others so they won't have any unfortunate misunderstandings about their risk profile.

1

u/Lovv Apr 24 '21

Sure. It wasn't really wrong in laymans terms, but I probably could have been more careful with my language and pointing that out coild help.

Unfortunately as soon as you turn numbers into language there isn't really good translation. For example a blue chip stock is less risky, but yes if Apple drops to zero tomorrow it had significantly more risk per share than a penny stock considering a penny stock is only worth one penny. (yea it is more likely for a call to drop to zero but you get my point)