These are some real lessons that I have learnt the hard way.

TLDR: Basically: 1. Buy in the money 2. Buy far into the future 3. Do your own due diligence But with a lot more flavour; —————— I just want to open, by saying I’m no Gordon Gecko, there’s no course involved, and I probably know only as much as the rest of you in here, if not less. I’m new to this shit myself and have recently been transitioning from theory to practice with my first few options trades. These are three “foundational” lessons I’ve learnt that have genuinely helped me out, and applying them will greatly limit your losses, or even make you money. 1. Always buy ITM. You’re new? You’re starting out? Great, then you got no business looking at out of the money options. If you can’t afford the premium, you have no business trading it. That’s rule 1. Always buy ITM. 2. The further the expiry, the happier you will be and the better you will sleep at night. If you got hair, don’t lose it, give yourself as much time as you can. If you’re bald, you don’t need veins popping out, give yourself time. The further the expiry date, the greener the pasture or some wise shit like that. Buy ITM, buy FAR. 3. Due diligence. Due diligence. Due diligence! Many of you starting out (myself included at first), first go on the options page of their broker, look up S&P or QQQ, navigate to the contracts table and go “hmmm what do I buy”? This is regard\* behaviour. This is backwards. Options trading is not : “Look at Contracts table on QQQ” -> look at Greeks -> “tEcHnIcAL aNaLySIS on greeks only” -> decide on a contract. If you do this, you WILL lose money. Here’s how it should really go: “You have a directional thesis on a company” -> “you go research your idea and deem the likelihood of it” -> “you make your bet. - x date at y price -“ -> “THEN and only THEN do you fucking go on your brokerage account, see the options for that specific company, and buy the contract that corresponds to the BET that YOU independently made and researched” X date, at x price. That’s all a contract comes down to. You are saying that you will buy 100 shares of any given company at x price by or at x date. It gets more complicated, but you won’t ever get to those complicated parts if you can’t first understand and internalize these basic concepts. The sooner your bet happens, the more money you make. The further out your expiry date is, the less “rent” you pay on holding the contract and short-term volatility won’t hurt you as much (fact check me on this one though please, don’t actually remember tbh). Good faith research, industry specific reports, data sets, THESE are the shit you base your research on, not joe shmo on youtube, reddit or instagram. Do your own due diligence, I won’t straight up give ya’ll how exactly I pick my plays, but it’s honestly not hard to figure out. One hint: screeners are your friends. Read real investment books. Long directional bets kinda depend on strong fundamentals analysis as well as technical. Use technical analysis the way law enforcement uses lie detectors lmao (they still build a real case regardless). Honestly there’s a lot more that goes into it and I’m not doing it all justice, I’m still learning myself, but ever-since I started living my own rules, I’m starting to see way more green than red. Read these, understand these, and if you’re really out there buying your first contracts trying to learn this game, save the 0dte shit for when you know what you’re doing. Start smart. There’s no honour in posting loss porn, we work hard for our money.

24 comments held Reddit says 24 on reddit ↗

u/OsamaBagHolding 6 2 days ago

No.
u/iron_condor34 5 2 days ago

You can dabble in OTM options if you're expiration is decently far out. I just did it buying SPY 820 calls for october. They more than doubled in two days.
u/TheBoxerBySandG OP -1 2 days ago

My first was OTM and it lost me money before i doubled down and made it back. I’m not saying it can’t be done. High conviction is high conviction, i understand that. Think of my post as “general rules to follow” but don’t forget that all rules are made to be broken hehe Even if going OTM tho, I’d still say the other 2 points stand. Due diligence is a must. Instincts are great but do you have any evidence to back it? Real data not just “sentiment”. I think this is a sword a lot of beginner fall on initially. If you want safe, ITM all the way. If you’re feeling confident about your bet, and wanna put your money where your mouth is, by all means. Shit I do that myself lol. But the thesis has got to make sense.
u/iron_condor34 1 1 day ago

Options really aren't "safe" products to trade.
u/penga-penga 4 2 days ago

Nonsense.
u/TheBoxerBySandG OP -4 2 days ago

How so?
u/AltGrendel 1 1 day ago

They’re just negging you to get you to go away.
u/lithe_silhouette 1 1 day ago

There's arguments in favor and against the points you made. Those are not some universal rules. You buy in the money and it shits the bad you're losing a lot more. Same with leaps vs short dated, you're paying a ton and in a downturn they drop a ton even if they expire a year into the future.
u/NyH2002HSE 1 1 day ago

If you’re new to options you should focus on learning everything about them… that is before you even consider trading them Once you do that look into being short Vega. Screw the rest, short Vega, hedge yourself in case of a black Swan you should backtest on option omega and option net explorer Learn about cagr, drawdown, cagr on margin, MAR ratio, sortino, sharpe, alpha, beta, Kelly criterion Build a bullet proof mechanical system stop focusing on the rest. Spend the year, two or three years it takes to build that Thank yourself later for putting all that work into something you can rely on in any market condition and generates income consistently without major directional fear
u/TheBoxerBySandG OP 1 1 day ago

Screenshotted for further study lol, thank you. Those are all terms I’ve heard before in passing but tbh If you were to ask me to drop definitions I’d blank lol. Tbf I’m not a complete bozo, I do have solid experience with my own investments, my strategy so far has been basically emulating my investments but in options language. I’m started to make small consistent wins. I don’t 5x or 10x my money, I’m happy starting out with 1.2x,1.3x. But I’m also not wiping any of my accounts on a weekly basis so wtf do I know lol
u/RandomRedditor5689 1 1 day ago

Buying ITM options because its somehow "safer" than OTM options makes no sense.
u/MrFyxet99 1 1 day ago

Buying less extrinsic value may be of use to limit IV based losses.
u/RandomRedditor5689 1 1 day ago

Extrinsic value goes down the further away from ATM (in either direction) ... OP seems to be saying ITM it fundamentally better than OTM. Like buying a 90% call is better than a 110% call because being 10% ITM is better than 10% OTM , but they will both have very similar time value , you are paying up roughly the same amount, buy you are just getting more delta on the ITM (both upside and downside).
u/MrFyxet99 1 1 day ago

You’re right premium goes down the farther you go OTM. That being said, any OTM option is %100 extrinsic value and the entire premium is exposed to IV. Take this example buying a 70delta option for $20 or 10 $2.00 farther OTM options, %100 extrinsic. The 70 delta option is \~ %30 extrinsic value. With a %1 drop in IV the 10 $2.00 options will lose a lot more value due to IV and the OTM vomma ramp. You need an exceedingly strong move for delta to have a chance counteracting that.
u/RandomRedditor5689 1 1 day ago

Assuming a flat vol skew/smile, for the same in/out of the moniness options the amount of extrinsic value is pretty much the same. In reality, you will most likely be overpaying for that downside (ITM) strike in vol terms. Using some real numbers ... SPY ref 773 25Sep2026 734c 46mid , 17.3IV , 83d 734p 4.8mid -19d <- this is a good appoximation of the time value in call 811c 2.4mid , 11.9IV , 16d You are paying less for that 811c than the 734c in vol terms and will loose it just as fast if vols move. The rest is just delta.
u/UOkayBrah 1 1 day ago

Yes but if you use a percentage stop when sizing to keep your risked capital comparable over different trades, the higher delta (ATM) gives you more delta stop distance in the underlying. Also using SPY: 092526 773c = $1595, 0.53 delta. If your R (stop loss) is 35%, you cut at -558. That gives you 10.53 (15.95*0.35=5.58/0.53) of room for the underlying to drop before considering Gamma. Gamma buys incrementally more room since it slows delta down as you get OTM. Same DTE, SPY 789C is $7.97, two contracts gives you the same $R. 2% OTM, delta is 0.3581. if you wanted to just keep the %R then one contract is fine too with less aggregate risk. This gives you a $7.79 move in the underlying before stopping out, also not considering Gamma (which provides less friction since it's already further OTM). From a delta perspective the ATM call gives you 35% more room to find support in the underlying and doesn't need as precise of an entry. You don't necessarily have to risk more capital if you just buy one contract instead of 2.
u/RandomRedditor5689 1 1 day ago

Buying 2x the 102c because its cheaper simply to equalize the dollar spend is not really a good analysis because you are trading more delta AND more vega so its just inherently a more risky trade (I wouldn't really just look at the dollar spend as the risk when trading options). You could trade 2x the 102c and then equalize the delta by shorting some SPY ... TRADE 1 BUY 1 773 CALL : $15.9 , 54d , 1.07vega TRADE 2 BUY 2 789 CALL : $16 , 72d , 2.02vega , AND short 0.18 shares SPY Lets take your scenario and consider a $10 move in SPY as the stop for Trade 1 ... SPY -> 763 TRADE 1 we can estimate the new price usng the 783c ($10 OTM at entry) ... 10.65 ... so as expected a loss of about $5.2 TRADE 2 similarly we can estimate the new price using the 799c ($4.9) ... so TRADE 2 option MTM is now 2x 4.9 = $9.8 plus you have $1.8 pickup on the short SPY for a MTM of 10.6 You are pretty much at the same PL.
u/UOkayBrah 1 1 day ago

Of course you wouldn't but many people do just look at the dollar position and assume their taking less risk because they are paying less premium. If someone isn't comfortable buying ITM or ATM options because they don't want to spend $1500, they may justify it to themselves to spend $750 instead, not realizing they are giving themselves less room for the option to work. Which I think is where the OP is going with the idea that ITM is safer. You're just focusing on time value in your original comment. Sure if you short fractional shares then you can even out the delta but that's not really where you were going with your 10% ITM vs 10% OTM comment above so I'm not sure why that's being added. My only point is that ATM/ITM is inherently safer from a delta perspective and provides more stopping distance in the underlying. Newer option traders more often make the mistake of thinking that position size is the measure of their risk and then inherently buy much tighter options OTM that require you to be right in time and direction, or they leverage up by taking more contracts. In this sense, ITM is safer.
u/RandomRedditor5689 1 22 hours ago

The delta is paramount because it equalizes the position risk over small instantaneous moves in the underlier so when assessing the risk of two option trades, its always a good idea to remove the spot delta from the equation so you are only considering the gamma. When looking at the return of a postion its a good idea to take into the cash left over that is not invested in one strategy vs the other. So in your example, you equalized the total cash, but left the delta open , which is why I closed it. The alternative would be to trade 1 ATM vs 1 102c which will leave about $7 cash in hand to add into the post move total liquidation value. In any case, I think if you look at your portfolio this way, you'll see that the returns aren't really that much safer on a day to day basis outside some very specific scenarios but outperforms most everywhere else.
u/Sven929 1 1 day ago

So you're new to this and decided to spit your wisdom to the internet? There's traders on here that have spent years or decades perfecting their edge, and theres plenty of viable OTM and near expiry strategies. "The sooner your bet happens, the more money you make" Terrible advice.
u/TheBoxerBySandG OP 1 1 day ago

It is true though. If you buy a contract expiring in summer 27, and let’s say the strike is OTM at 200. If by January the stock is at 210, you’ll make more money selling than if the stock is 210 on expiry. It’s common sense. You buy the contract further out to protect against volatility, it gives you time. But obviously the sooner your bet “happens”, the higher your return will be. “Traders that have spent years or decades …” exactly. And when did I ever say this post is for them? You just wanna say shit just to say shit don’t you lol
u/Sven929 1 1 day ago

This is wrong sorry... longer dated options have more vega, meaning they are more sensitive to fluctuations in IV. Buying long dated options doesn't protect against volatility.
u/cosmicgreg2 1 1 day ago

For long term, warrants may make more sense. The OXY warrants fo instance expire almost a year from now, and other than missed dividends, trade at exactly the intrinsic value
u/ThetaEdgeHQ 1 1 day ago

The ITM vs OTM fight in here is really two different comparisons getting mixed together. RandomRedditor is right that a 10 percent ITM call and a 10 percent OTM call carry similar time value, roughly symmetric around ATM. MrFyxet is right that a deep 70 delta call is maybe 30 percent extrinsic while a far OTM lotto is 100 percent extrinsic. Both true, different trades. The thing that actually makes ITM feel safer is not the strike, it is the extrinsic fraction. On a 70 delta option only about a third of your premium is the decaying, vol sensitive part. On a cheap OTM the whole ticket is. So going ITM shrinks the slice of your money exposed to theta and IV, it does not remove risk. Where the post trips is the buy far part. Longer expiry adds vega, so it makes you more sensitive to an IV drop, not less, which is what Sven already flagged. Buy ITM and buy far actually pull in opposite directions on total extrinsic dollars: going deeper ITM cuts the extrinsic percent, going further out raises the extrinsic dollars you paid. Worth knowing which lever you are actually pulling and why.