Why Might a Speculator Prefer OTM Options over ITM Options?
A speculator might prefer out-of-the-money (OTM) options over in-the-money (ITM) options due to their lower cost and higher leverage. Because OTM options are cheaper, a speculator can buy more contracts for the same amount of capital, amplifying potential returns if their price forecast is correct.
While the probability of an OTM option expiring worthless is high, a significant move in the underlying asset's price can lead to a much larger percentage gain on an OTM option compared to a more expensive ITM option.
Glossar
In-The-Money (ITM) Options
Option ⎊ An in-the-money (ITM) option possesses intrinsic value, meaning that exercising the contract immediately would result in a positive financial gain for the holder.
Speculator
Function ⎊ The speculator actively assumes risk that hedgers seek to offload, providing essential liquidity and price discovery across spot and derivatives venues.
OTM Options
Option ⎊ An options contract, within the cryptocurrency derivatives space, represents a financial agreement granting the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset ⎊ typically a cryptocurrency or token ⎊ at a predetermined price (the strike price) on or before a specific date (the expiration date).