Options - OTM vs ITM Explained: Options Trading Concepts

[@shockcityrocker]

But just to clarify - even you don’t hit the strike price, you can still sell your calls for a profit so long as the stock price is higher than when you bought it? I have some calls that are still out of the money, but have gone up significantly & with lots of time left.

[@jqahir]

Yes, sell it and take your profits.

[@daylansantiago7841]

yes, but if the option is OTM the closer it is to expiration date the faster it will lose value until it hits 0. This doesnt really matter if it expires in a year but when the expiration its in the following weeks or even a month you could potentially lose all the premium that you paid.

[@tzfrank3549]

Exactly!

[@andersonandrew112]

What do I do when my put options are in the money long before the expiration date? I've got a TSLA Put Option I bought when it was $1200/share, strike price is $1000 with a June expiration. Do I have to wait until expiration??

[@irobu]

@@jqahir i thought if it does not hit the strike price that one would lose the premium.??

[@stephenr6671]

Thank you for this video. Exactly what I was looking for. I couldn't find anything online that explained this as simply as you did.

[@jbrizight]

This only takes into account waiting for expiration, which is unrealistic

[@aaronabrahammohan9014]

Wow You just cleared a huge Load off my head, Cheers mate

[@Sarasdad91]

Love this video....All I ever do is do cash secured puts (CSP) and covered calls collecting premiums. Pick a stock you like, say yes I'd like owning 100 shares of that, then do CSP and if you get assigned, take the 100 shares and turn it into a covered call and collect more premiums. You pay less than original share price to buy the stock in a CSP, then you collect more than share price in a covered call if you have to sell the shares. You may even collect many premiums b4 you get assigned. A win win..

[@incorrecterror]

This video has been a huge help. Been trying to understand why someone would even buy OTM options. But this is really them believing that they will eventually get ITM. Thanks. 👍🏾

[@gjonbaftijaj4964]

You don't even have to get in the money to make a profit. If the stock price goes up you can sell your option at a higher premium and make a profit with it not being in the money.

[@nixonw7950]

I'm trying to understand covered calls. Your videos help alot. You have multiple examples and the visuals are very helpful. Thank you.

[@bluepine33]

I would agree with Eddie who's comment is below. Your knowledge and experience base is so proficient that you tend to now take into consideration what the viewer does not know. An example is that you never state if you are talking about Long Calls or Short Calls, you just use the word "Calls". In another example you may be speaking in the context of Puts so consider that a Short Put could also be called a Sell Put and a Long Put is interchangeable with Buy Puts. Another example is when you make reference to "Buyers" then you must assume that I already know that "Buyers" are automatically going to be Long Calls & Long Puts so you could instead say "buyers of long calls". One last example, when you spoke of ---"For sellers, when market price is above, than it's OTM" - it would be more helpful if you slowed down and stated it as "For sellers when market price is above STRIKE, than it's OTM. Otherwise, good job on this topic.

[@wiredawg2005]

Question: to clarify the OTM example (8:43): stock price is at 103 at expiration(it expired), the option call buyer would be up 3 points. But the buyer would still have to fork out $10,000 to buy 100 shares though, it would be worth $10,300 in their account, hence being profitable?

[@pranjalpatil9659]

this is by far the best explanation I've found about options !

[@PimaArt]

Thanks for the video. I’m still new to options and I’m liking Apple with a 2 year expiration and am waiting for a good entry ,but I can’t decide itm or otm any advice will greatly be appreciated.

[@gjonbaftijaj4964]

You should find the middle ground for an out of the money call purchase because you will get a lower premium. If you buy an in the money long term stock your premium will be very high.

[@adayinthelifeoftofu8768]

Greatly explained about IN THE MONEY. I was a bit confused of what is In the Money and out of the Money until you explained. Now i understand. Thanks

[@IntrovertTravler]

Brilliant video...the light bulbs have gone off and I am starting to understand how this works! One of the best explanations I’ve seen… I love the whiteboard keep it Comin

[@bigkirby951]

what happens if i buy a call and my stock goes up but does not hit strike price but i sell my call option before expiration date and the stock is higher in price

[@max26888]

When I trade buy call option, which is better to choose the striking price, the striking price is under the market price (in the money) or the striking price is over the market price(out of money)?

[@edgargamarra2612]

I bought a call ITM that expires 03/05 with a strike price of $37.5 Why is it that my I am still far from the Break Even price of $40.55 but it shows that I already have a total return of $55. Thanks

[@rameshk4960]

Hi Mike, Thanks for the lessons. But, is it not a good idea to always short slightly in the money? 1) When an OTM travels into ITM, the premium will increase by several hundred percent. 2) When an ITM travels further ITM, the premium will increase but at a reduced rate compared to the one which was initially OTM. 3) We get to collect a handsome premium on an ITM compared to an OTM. For example: ITM premium = $2.5 on expiry: 100% of $250 = $250 (ITM becomes OTM and retains no value) 50% of $250 = $125 (ITM stays ITM and retains nothing but intrinsic value) 200% of $250 = $500 (ITM travels further ITM) OTM premium = $1 on expiry: 100% of $100 = $100 (OTM stays OTM and retains no value) 250% of $100 = $250 (OTM becomes ITM) 800% of $100 = $800 (OTM becomes slightly far ITM) Thanks.

[@tastyliveshow]

ITM options can offer a higher profit, but the credit received isn't all extrinsic value as the option is ITM and has intrinsic value that doesn't decay. In other words, if the stock price doesn't move the ITM option will still retain most of its value. Selling an ITM put is synthetically the same as a covered call on the same strike. SElling an ITM call is synthetically the same as a covered put on the same strike. Selling OTM options gives much more room for success, especially if we're talking about capturing 100% of the premium collected.

[@Amin-hx5pb]

I watched 5 videos about options didn't understand anything just watched yours and I understand it all now . very helpful .

[@paolatercero4424]

Wow! Thank you is the best explanation that I found. The best!! I' m studying for my SIE test and I did not understand. Thanks a lot

[@tessjones5987]

Good examples adnd clarification Thank you.

[@metaparcel]

Please don't take offense to what I'm about to say. most people who view this are too embarrassed to admit that they are confused so they will write in the comments that it's quite helpful or that they understood everything you said. however the truth of the matter is is that what you say and what you show are quite confusing and because online learning is very visual it would be very helpful if you went to some very popular KZbin sites that explain complicated things such as mathematics or black holes or things of that nature and how they visualize those abstract Concepts into something that even a 12 year old can understand. your company has many more resources than many KZbinrs do and yet KZbinrs with less resources than yourselves are able to reach a far greater audience with a more visually appealing presentation. I understand this isn't a popularity contest but this is about explaining things correct? Also I use Google Voice to write this so please forgive me for grammatical errors.

[@tastyliveshow]

We will keep this in mind moving forward, thanks for your feedback!

[@HxC_Fragman]

THANK YOU for the refresher. Excellent material.

[@jeromeburgess8463]

Do you give or charge monthly daily Options alerts? Or do u not do that? If so, I am interested. You broke this video down

[@tastyliveshow]

I post all of my trades on the tastyworks platform follow page - check out tastyworks.com!

[@carolinedavis6013]

I love the takeaways posted toward the end of your videos! It's a great way to easily revisit the highlights at a later point. Keep up the great work! =)

[@TheJanet4321]

It sounds like greek to me! Will have to watch again.

[@oscarferreira5000]

Thank you so much!!!

[@e.sanoop110]

Hi guys. If I buy a Deep In the money Call Options and a Deep In the money Put Options of the same expiry of the same company ABC for example, will I have loss. Also if I hold on to such Deep In the Money Options till the expiry day, will it become a loss and also due to the poor liquidity in all Deep In the money options, will my broker close my positions automatically on the expiry date, if so, will it create a loss? Pls advise ASAP 🙏🙏🙏

[@mrbrown6896]

Here's what Im not quite understanding. In Example 3 at 8:47. How does the buyer profit? He can buy $100 Shares at $100 =$10000 when they are worth $103. So, he can buy them (if he/she chooses) then sell them at $103 x 100 = $10300 each making $300?

[@mrbrown6896]

Never Mind: Better Explanation below Imagine that stock in the fictional company Xavier’s Xylophones is trading for $50 per share on May 1st. Based on your research, you think Xavier’s Xylophones stock is going to increase by 20% ($10) sometime in the next four months. On that basis you buy the $55 call option that expires in August. The cost, or premium, of this option is $2. But, because the contract controls 100 shares of Xavier’s Xylophones, you must multiply the $2 by 100, meaning that you pay a total of $200 for each call option contract you purchase. Fast forward to August: You were spot on with your prediction. Xavier’s Xylophones stock is now trading at $60 per share. As a result, the option you bought for $2 is now worth $5 (that is, the current price, $60, minus $55, your contract’s strike price). At this point you can do one of two things: (THIS IS WHAT EVERY SINGLE VIDEO ON KZbin IS LEAVING OUT) Assuming you have the money in your account and you want to take on the risk of owning the stock, you may exercise your right to buy 100 shares of Xavier’s Xylophones stock at $55. ---------->>>>>>>>>>Sell your contract in the open market for a potential profit of $300 ($5 gain - $2 premium = $3 x 100 shares per contract = $300).

[@bryanmartinez291]

What if I have a put option contract at 11 strike price and I’m in the money and it expires. Does that mean I have to buy 100 shares at 11?

[@tastyliveshow]

If you have a short put, yes. You would have 100 shares the next trading day. If you don't want that to happen, you can simply buy back the short put prior to expiration.

[@andersonandrew112]

What do I do when my put options are in the money long before the expiration date? I've got a TSLA Put Option I bought when it was $1200/share, strike price is $1000 with a June expiration. Do I have to wait until expiration??

[@sciggler2880]

Great video

[@flaasome]

Only thing I would clarify is who is the buyer and who is the seller. If I’m buying a put and looking to sell I feel more like the seller than the buyer

[@Kenzuki7]

i have question lets say amc is at $59 right now and i buy a call options for $57, what does it mean? do i gain more money or loose please i need explanation

[@alexasibuo5342]

Well explained. Thanks

[@protectionlikefirmorasking4674]

As a beginner, what happens when the option seller is in the money, and options buyers are out of the money

[@desinysmith1900]

Great breakdown thank you so much!

[@geminiwoman0]

Okay so is he saying to make money or a call having value to buy a call below the market price?

[@pnggreen5258]

Really helpful videos!

[@JamesH-kn6bl]

I understand that options that are bought expire worthless that are in OTM but what about the premium that an ITM option has. Does that premium disappear also at expiration, or does the trader get that premium back in some way (If the trader does not own any shares for example)?

[@tastyliveshow]

If the ITM option is held through expiration, that ITM premium retained through the stock transformation process. All ITM options are turned into shares of stock if held through expiration.

[@andrewpianojunkie]

Hi, just a question: For a simple option seller, either selling put or call, he/she always win at the DTE whenever it's OTM? What if the stock price is going against the direction of one's option position? Eg. Selling Put, the stock price coming down but still OTM by the DTE? On ThinkOrSwim the P/L Open will be in red, right? Thanks if anyone can answer me.

[@tastyliveshow]

Andrew, Yes - to put it simply - if an option is sold for the premium value, as long as it is OTM at expiration, it will be worthless and it will disappear. If I sell a put for example, and the next day the stock drops, I should see a loss on my portfolio, as the put is now closer to the stock price and should be worth more, BUT, at expiration, this won't matter as long as the option stays OTM. That is how an option seller can still make money even when the stock goes against them.

[@andrewpianojunkie]

tastytrade Thank you very much.

[@monicachung3574]

Your explanation is very clear. Thank you!

[@chattingwithshap8010]

Love the intro!! Zep

[@gregallen1]

If I’m selling at put at 70 strike when it’s actual price is at 75, if it rises to 85 how is that good?? I thought selling a put means your bearish on stock?? Don’t you need the stock to go down for it to be good for seller??

[@umangbansal1221]

Selling a put means you are bullish on the stock

[@MrEstebanEscudero]

Great video.

[@-no-handle]

09:42 How does the OTM/ITM matter @expiration if options seller has already sold the options and taken the premium of it?

[@tastyliveshow]

If it's ITM, the option will turn into stock at expiration and your P/L will be based off of the premium you received and where the stock price is. If it's OTM, the option will disappear and you'll keep that premium as 100% profit.

[@100foldreturn1]

What is the risk to sell a put option deep in the money? Thanks

[@tastyliveshow]

Getting assigned early since extrinsic value is low is a headache more than a risk, but the markets will be illiquid, so the risk is getting a price that's not ideal. outside of that a deep ITM put is basically just long stock, and at that point you might as well be long stock so you have unlimited upside profit potential, which a short put doesn't have.

[@wnn101]

Question!! I purchased OTM option - 32c 12/24. Stock currently 28.80. Theta -.10, total return $270. Does this mean I could sell my contract right now for $270 - Profit? Or do I have to wait until it hits strike to see profit even if my return percentages are ~$135. Say I want to ride this a bit longer. Do I want to sell ATM? After its ITM? I know it’s basic but a lot of info I find talks about deep OTM and that’s not me, and im relatively close to strike (extremely bullish stock I suspect will stay so). If somebody could please help and advise that’d be awesome.

[@tastyliveshow]

Yes you can sell out of long options at any time - no need to hold to expiration if you don't want to!

[@irfanvlogs8200]

Dude ur always in great shape keep it up nice video!

[@KraftDinnnerFtw]

Hey! Just starting learning how to trade options this week. This video was really helpful! It was well explained and easy to follow. Thanks for the video. Keep them up mate :)

[@carsandcrypto5576]

Hey I was wondering. If i buy a OTM call ‘ can I sell if it moves closer to ITM without actually being ITM & it still be profitable?

[@tastyliveshow]

Yes you can - if you buy a call today and the stock rallies tomorrow, that call will be worth more and you can sell it for a profit even if it's OTM - the trouble comes with holding long options until expiration, where you need the call to be ITM to be profitable.

[@kismattouhid7220]

@@NWorship this aged well haha

[@yasserkhalifa2928]

it is simple: buy puts if out of the money options to make money are above the call of the put prices for the seller or the buyer because it is lower than the strike of the price in the morning before the call option expires at night time... Will I ever understand this stuff??? doubtful....Moving on aimlessly to another video of another Guru..

[@invisiblezod7354]

Sir. If iv increases price decreases. If price increases then IV decreases... That means option buyer's get loss by any one of them...

[@tastyliveshow]

These statements are reversed. If IV increases that means option prices are higher.

[@al1383]

So, if I have a put option for MEET (purchased for $5) with exp. 3/20, $6 strike, and $5.95 break even. And MEET is currently $5.26, i should hold until exp and excercise, and NOT sell the option for it's current "mark price" of $85? Cost me $5, could sell for $85. Profit of $80(with risk if it goes lower and buyer excercise) or At exp. I make $69 (or more or less or none) Those my options? Pun not intended.. I don't like the risk involved with selling an option. But this is my first option ever purchased.

[@tastyliveshow]

When holding a long option to expiration, you have to realize that your extrinsic value that you see right now will be gone. That is value lost regardless of where the stock price is. That could be good or bad, but over time it skews to being bad since you need moves in your favor to make up for that value lost. Typically long option trades get in and out quickly so that they can stop this from affecting them too much, and it's rare that long option buyers hold to expiration because of this extrinsic value decay. Totally up to you though!

[@al1383]

@@tastyliveshow gotcha, thanks for the info

[@lotharneumann153]

Hallo in your Option Chan you have the column probability ITM. In my Option Chan with Bloomberg there is no Column probability ITM Therefore i Must calculate for Evers Trade the probability ITM Are you Abel Ton Gigerls an Algorithmus to calculate the probability ITM? Best geratenes Lothar Neumann

[@tastyliveshow]

Do you have delta? Delta is very similar to prob. ITM and can be used as a proxy.

[@Kavilion]

It still makes absolutely no sense to me that anyone would sell ITM options

[@pristineo]

Because if it jumps super high and you wont think it will stay that high you'll get more. The farther ITM it is the more money you get

[@gonzo1483]

With ITM options you pay a premium for the right to buy/sell at a price better than the current market price. Why not skip paying the premium and just buy/sell the stock at a worse price? Is it not priced about the same overall? When is there an incentive to buy ITM options?

[@tastyliveshow]

The answer boils down to leverage in long options, and defined risk. Buying 100 shares of stock is much more risk and capital than buying a call. Buying a call can offer similar leverage and profit potential compared to buying shares of stock, so it's really a leverage play more than anything. Selling a put to get into 100 shares of stock is one way to get into the shares at a lower level, while still collecting a premium and getting paid to do so. Even if the stock stays the same or rises, you still keep the premium at expiration if the option is OTM, so it opens up a ton of ways to be successful, rather than needing the stock to move in your direction. Just a few examples!

[@gonzo1483]

@@tastyliveshow awesome!

[@melocarina]

Hey mike. I have some calls otm down to 0.3 now the stock went up 3 dollars and my delta is 0.03 shouldn’t my call go up from 0.03 to 0.06? Thanks!

[@tastyliveshow]

Not necessarily - delta is just one part of the equation - theta and vega are also contributing to price changes, so even though the stock goes up $3, it may have done so over a period of time, or resulted in a volatility crush, which would battle against your option price increasing.

[@hollodollo4771]

"distinctishcuwan" anyone else get reminded of szechwuan sauce?

[@aznriceboi619]

I am so lost haha

[@azjatyckieklimaty2172]

I don't understand a damn shit here 😔🤬😠

[@toroblanco5070]

Unnecessary complicated explanation.