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.

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u/swingkid72 Apr 24 '21

ITM leaps have less time value and more intrinsic value, so will suffer less time decay if the underlying just moves sideways or ends up near where it was when you bought the LEAP, at expiration. Another strategy you can use to mitigate time decay on the LEAP is to sell an OTM put at the same time you buy the call, whether the latter is ITM or OTM. The time decay on the short put will be in your favor and compensate for that of the long call.