Option contracts can be divided into three types: in-the-money options, at-the-money options and out-of-the-money options according to the relationship between the exercise price and the underlying asset**.
In-the-money options: can be simply understood as an option contract that is immediately exercised to make a profit
For call options, when the strike price of the contract is lower than the current market of the underlying asset**, it is referred to as an in-the-money option.
For a put option, when the strike price of the contract is higher than the current market of the underlying asset**, it is referred to as an in-the-money option.
In-the-money options are characterized by higher premium costs and less leverage than at-the-money and out-of-the-money options. In-the-money options contain intrinsic value and time value, of which time value accounts for a relatively small proportion and time infringes on the buyer relatively low. Pocket options are actually more synchronized with the fluctuations of the underlying asset, so as long as the underlying asset fluctuates, the in-the-money option has the potential to generate income.
Option sauce collated and released.
At-the-money options: Immediate exercise profit and loss is zero
Whether it is a call option or a put option, when the strike price of the contract is equal to the current market of the underlying asset**, it is called an at-the-money option. In this case, the profit or loss for exercising the option immediately is zero.
At-the-money options are characterized by a moderate premium cost, moderate leverage, and maximum time value, but it also means a large time value attrition rate. At-the-money options are the easiest to convert to real money, so when the underlying asset** effectively breaks through the at-the-money strike price, at-the-money options can bring the greatest profits. However, if the direction is wrong, the loss can also be large.
Out-of-the-money options: Immediate exercise of the option becomes negative
For call options, when the strike price of the contract is higher than the current market of the underlying asset**, it is referred to as out-of-the-money options.
For a put option, when the strike price of the contract is lower than the current market of the underlying asset**, it is referred to as an out-of-the-money option. In this case, the profit or loss of the immediate exercise is negative.
Out-of-the-money options are characterized by low premium costs, high leverage, and a focus on time value, with an exercise price away from the underlying asset**. Out-of-the-money options are only likely to generate profits if there is a large movement in the favorable direction of the underlying asset. The greater the volatility, the greater the profit. However, if it is only a small **, due to the loss of time value, even if it is in the right direction, it may face a situation of not making a profit. The greater the volatility requirements of deep out-of-the-money options, the greater the risk at expiration.
Summary: If investors want to obtain directional returns steadily, they can choose medium in-the-money options (time value accounts for less than 10%). If you want to make a large profit, you can choose at-the-money or at-the-money or at-the-money and out-of-the-money options. For situations where the market is judged to be very volatile, you can consider participating in medium out-of-the-money options, but you need to be cautious and avoid treating them as a way to buy lottery tickets.