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Day Trading Options: AT, IN, or OUT of the Money Options? #HungryForReturns 3

Hey, this is Sasha and welcome to another episode on “Hungry for Returns” where I answer your trading and investing questions here in video format that’s a little more detailed than just writing back an email.

If you want to submit your question by voice or writing a problem take a look at our website at and go ahead and send your question. You might be featured on the show. With that being said, let’s take a listen here on our next question.

This question is related to in the money, out of the money, and at the money option

“Which is the best for day trading options without leaving any positions opened overnight? Would it be ‘out of the money,’ ‘at the money,’ or ‘in the money’? I believe it’s ‘at the money,’ but I need your knowledge and experience on this. I appreciate it, and that’s about it on that question, thank you. Second question — I was wondering if they have any software yet that allows us that don’t have a whole lot of money to be able to sell options calls or puts? TD Ameritrade says you have to qualify our own the stock that defeats the purpose. Please help me out. I was hoping there was a software that I know that there’s a cap. Your credit is only what you can make. I was hoping there was also maybe something new out there that allows it to stop also when it goes against you. I know that’s why they don’t want us to play those, but they’re fantastic when I paper trade them. Again, thank you very much.”

Let’s take a look here at this question and break it down. You’re probably looking at single options when you’re talking about these between both of these questions.

It comes down to – they have different advantages

We look at Amazon here. I like using Amazon just because it has a lot of strikes. You could apply this to any stock.

When we look at ‘at the money,’ it’s looking right at that price. Where that stock is trading — it’s 1896, so it’s right around there 1895, you could even say 1900, but you’re not going to get it exactly right.

So, 1895 is really ‘at the money.’ It’s at the money. It’s right there very close.

If you go ‘in the money,’ it’s anything here in blue — which you could say is 1800.

‘Out of the money’ would be way out here.

The main difference is that it comes down to expiration. That’s really what it means.

The amount of Delta but if you’re day trading this, it doesn’t matter. If you’re just day trading these, it does not matter that much on which one is in ‘at the money’ or ‘out of the money’ except when it comes to the Delta part, and this is a big difference.

Let’s look at the ‘at the money part’ which we’re going to get at 1900, and I’ll just put it in 1900 because it’s 1896 so close enough.

We’ll take a look at the 1900 and what you’re looking at here when you’re day trading these things is you know you’re looking at the Delta.

The Delta is how fast it moves, as far as your profit goes, for a one dollar movement in the stock. If I look at here, we have 52 Delta. Let’s say I offset this by a stock goes up one dollar. Look at my profit margin; it’s about 52. It’s not exactly, but it’ll move in 52 increments.

Let’s go to $2. You can see we went to $92 in profit.

Initially, that first one is not going to work as much because you’re starting at a negative $12 for the bid-ask spread.

Your Delta is at 52 ‘at the money’ on this one.

What happens next?

If you go ‘out of the money,’ your Delta is 15. It’s much less, so it gives it a little bit more cushion. If it goes against you, it doesn’t hurt you as bad, but if things go for you, it doesn’t help you as much as well.

Look at here, a $1 gain right there. You can see you’re still down nine bucks. Let’s go with a $2.00 gain, and now you’re up to five dollars because remember they’d ask spread. If we started at zero, we’re down already $25.

If we go up three dollars, we’re up 20. Now, you’ll see again.

We’ll probably jump to about 35 because we have a delta of 15 so 20 plus 15, will be about 35. If we change this to a 4, so there you go, you can see it’s 38 as the price is wiggling.

That’s really what it comes down to — is that now prices are a little softer for you whether they go down or whether they go up.

If you go ‘in the money,’ you’re matching the stock much more. You have a Delta of 0.71.

When you’re looking at this now, for every dollar move, it matches the stock much more closely.

If you’re trying to match the stock and you’re trying to day trade, typically, most day traders will go way ‘in the money’ but not too far to the point where you’re not illiquid. So, not to the point where there’s less liquidity or let’s say not a lot of contracts. You wouldn’t go, let’s say to the 780 or the 800, maybe but you would try and go maybe to let’s say 1400 there’s 110 open interest there. Maybe 1460 so you try to go deep in there and that way it moves very close to the stock.

That’s typically the approach most day traders would do with options.

As far as your second question goes — is when you’re doing these things naked.

Let’s say you’re selling, whether that’s a put or a call, no there’s not a lot of there’s no broker out there that’s going to do this for you because let’s say the stock files for bankruptcy which the chances are very slim. But you still have contracts and obligations and risks that are involved legally. If these all of a sudden dropped down, you’re going to be owing let’s say 50 grand 80 grand, and if you only have 2000 dollars in your account, you know the broker is going to lose out because they’re never going to collect from you.

So, no, they won’t let you trade this.

Instead, the better approach is to learn to trade vertical spreads as we’ve done with our Iron Condor course vertical or our vertical course. If you learn those things like let’s give you a set up here.

You cap off your losses and your wins. Now, you cap off your wins but you also cap off your losses, and that allows you to trade the spread and the stocks and still collect from the Theta. You can position them in different ways. You can position them to the upside or the downside that requires more knowledge because now you’re doing multi-leg spreads.

Final Word

But, as far as brokers go, you’re not going to find that anywhere because nobody’s going to give you a freebie loan — that if things explode, they’re not going to get anything from it.

Anyways, ‘in the money,’ ‘out of the money,’ ‘at the money.’ Typically, you’ll go deep in the money but again if you want a little softer movement, then you’ll go a little bit out of the money. And it just really depends on your capital amount.

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