In The Money Option Strategy

What are the characteristics of this option strategy?

The In The Money Option Strategy is an options trading strategy where the option buyer will initially buy further in-the-money (ITM) options than out-of-the-money (OTM) options. For example, they may buy 2 ITM calls and sell 1 OTM call. The initial cost can be high but the upside potential is generally higher. The strategy also involves selling options with lower deltas and a very low chance of expiring in-the-money.

Is this a bullish, bearish or neutral strategy?

In The Money Option Strategy is generally a bullish strategy, although it can be used as a neutral strategy when the options are bought and sold are close to one another in regard to the strike price.

Is this a beginner or an advanced option strategy?

In The Money Option Strategy is generally more suitable for advanced traders due to the complexity of the strategy and the cost of the profiting trade.

In what situation will I use this strategy?

The In The Money Option Strategy is most commonly used when the price of the underlying security is expected to appreciate in the near term, but is expected to be volatile in the near term.

Where does this strategy typically fall in the range of risk-reward and probability of profit?

In The Money Option Strategy is typically a high-risk, high-reward strategy with a high probability of profiting. The risk-reward ratio generally increases or decreases depending on the amount of leverage taken.

How is this strategy affected by the greeks?

The greeks (beta, delta, gamma, theta, and vega) all have an impact on the In The Money Option Strategy. Beta and delta will affect the likelihood of the underlying security reaching the strike price of the options. Gamma will impact the volatility of the options, while theta and vega will impacts the amount of time premium and IV of the options.

In what volatility regime (i.e VIX level) would this strategy be optimal?

In The Money Option Strategy is typically best used when the VIX level is high, as this increases the potential for the underlying security to move enough to enable a net profit from the strategy.

How do I adjust this strategy when the trade goes against me? And how easy or difficult is this strategy to adjust?

Adjusting the In The Money Option Strategy when the trade goes against you can be difficult and time consuming. In order to adjust the strategy, you would need to re-evaluate the position and determine which options should be bought and sold. This can have a disruptive effect on the momentum of the trade causing more losses. Therefore, it is important to be diligent with the initial trade selection.

Where does this strategy typically fall in the range of commissions and fees?

The commissions and fees associated with the In The Money Option Strategy vary depending on the options broker and the number of trades opened. The cost of commissions and fees typically falls on the higher end of the spectrum.

Is this a good option income strategy?

In The Money Option Strategy can be a good option income strategy since it has the potential for large returns. However, it is also important to consider the cost of commissions and fees, as well as the amount of time and effort required to adjust the strategy when the trade goes against you.

How do I know when to exit this strategy?

It is important to always use a predetermined exit strategy for the In The Money Option Strategy. The trader should consider both the price of the underlying security and the greeks when deciding when to exit the trade. If the underlying security has reached a price that yields a net profit from the trade, then it may be a good idea to close out the position.

How will market makers respond to this trade being opened?

Market makers will typically look out for any In The Money Option Strategies being opened in order to try and offset any potential risk that may arise from the trade. As such, it is important to be aware that the price of the option may be adjusted by the market maker in order to offset any risks.

What is an example (with calculations) of this strategy?

For example, suppose an investor was to buy 2 in-the-money call options with a strike price of $120 and sell 1 out-of-the-money call option with a strike price of $140. The cost of these three options would be $2,000. If the underlying security was to reach a price of $150 by the expiration of the options, the investor would have a net profit of $3,000 from their investments.

Using tools such as Vertical Options Spread or Long Guts Option Strategies provided by MarketXLS can help investors to quickly calculate the potential reward and risk for their option trades, prior to making investments

MarketXLS is a great resource for traders and investors. It provides tools such as options analytics to help them in picking the right option strategies based on the risk profile and their outlook. Tools like Probability of Profit, StopLoss and Screener are great ways to not only analyze the markets and stocks, but develop trade plans and get an edge on the other traders in the market. By analyzing options data live, it is easier than ever to stay on top of the market and make wise decisions on options trading opportunities.

Here are some templates that you can use to create your own models

Short Gut
Long Gut
Long Albatross Spread
Short Albatross Spread
Risk Reversal Option Strategy
Married Put
Long Strangle Option Strategy
Long Put Ladder
Short Put Ladder
Strike Arbitrage
Short Butterfly Spread
STOCK REPLACEMENT
Iron Albatross Spread
Covered Call Option Strategy
Strap Strangle
Strip Strangle
Covered Put
Covered Put

Search for all Templates here: https://marketxls.com/templates/

Relevant blogs that you can read to learn more about the topic

Synthetic Short Straddle With Puts Option Strategy
Short Guts & Long Guts Option Strategy
Long Calendar Spread Using Puts Option Strategy
Long Call Option Strategy (Explained With Excel Template)
Option Strategy- Long Calendar Spread (Excel Template)