Hi Mark,

My name is Walter and i would like to know what is a better buy or what's the difference between "in the money options"
and "out of money options"? and what other sites are good to find tips on stocks/options?

Thank you,

Sincerely,

Walter Jansky

PS: I have been learning options for about 4 months with paper trading.


Hello Walter,

1) Paper trading is an excellent method for getting some experience with trading, without risking any money. But, I encourage you to also do some reading. (Consider my book on option basics:  The Short Book on Options)

2) An "in the money option" is one in which the stock price has already moved beyond the strike price.  For example, if a stock is priced at $32 per share, all calls with a strike price below 32 are in the money.  All puts with a strike price above 32 are in the money.

All options that are in the money have an intrinsic value (the difference between the stock price and the strike price).

3) An option is "out of the money" if it has no intrinsic value.  That means that the stock still has to make a favorable move before the option owner has an option that is in the money.  For example, using that $32 stock as an example, all call options with a strike price above 32 are out of the money.  All puts with a strike price below 32 are out of the money.

4)Warning:  If by the term 'tips' you are referring to ideas about which options to buy (or sell), then be very careful.  This is a bad idea.  People who know in which direction a stock is going to move do not sell tips.  They trade and make a fortune.  The only people who sell tips are those who have no idea what is going to happen.  They make their money selling tips, not trading those 'tips' themselves.

5)If by 'tips' you are referring to additional education about options, I recommend you visit 888options.com (click 'no' on survey)

6)There is no good reply to your question as to which is better to buy.  So much depends on how you expect the underlying stock to perform.  In general, I recommend that investors not buy options, as it is so difficult to make money using that method.  But, if buying options is what you want to do, then most of the time you will be better off buying options that are in the money - or perhaps almost in the money.

Mark