Buy Stocks Online

Trading in the money options is one of many online options trading strategies available to help generate positive cash flow. Defining a solid in the money trading strategy can greatly reduce your risk and exposure to a highly volatile stock market. Trading these types of options allows investors who generally only buy stocks online to diversify their investments. There are two types of trades that can be placed that are considered to be “in the money” when it comes to online options trading. Those two trades involve selling calls as well as selling puts. Regardless if the stock market is racing up or crashing down, you can use at least one of these online options trading scenarios to your advantage.

Remember – Online Options Trading can make you money in a bear market just as easily as trading them in a bull market!

In the Money Calls
Online options trading with call contracts that are in the money allow you to reduce your exposure to the macro movements in the stock market. Purchasing a call is a sign that you believe a particular stock will be moving up. When you purchase a call, you should have a bullish opinion on where the stock will be trading over the course of the options contract. Depending on the stock, there are usually several different option contracts available to trade that span across many strike prices as well as expiration dates.

As mentioned earlier, there are many different strike prices and expiration dates normally available for different securities. The important thing to remember is that to be considered in the money, the strike price must be below the current price of the stock. For example, if a stock price is trading at $15 per share – any call option with a strike price below that amount is considered in the money. Likewise, any call option with a strike price above the share price is considered out of the money and a call option with a strike price equal to $15 is considered at the money.

Why are in the money calls less risky than out of the money calls? There is typically less risk with an option that has a strike price below the current share price because if the contract expired today – it would still have value. This is known as intrinsic value. Out of the money calls would be worthless if they expired today because of no intrinsic value – thus making them more risky.

In the Money Puts
Similar to in the money calls, an in the money put is considered any contract that has a strike price above the current price of the stock. Remember that online options trading with puts work opposite of how a call works. In a bear market, you would probably be more inclined at trading puts than calls because of the overall bearish sentiment. Purchasing a put contract gives you the right but not obligation to sell the underlying security at the strike price on or before the expiration date.

In the money put contracts can also have intrinsic value where the strike price is above the share price of the stock. Purchasing a put contract with a strike price of $20 with a current share price of the stock at $15 would be considered in the money. You could exercise the option at any time on or before the expiration date. That means you would have the right to sell 100 shares (1 put contract) for $20 which is at a $5 premium over the current share price. That premium gives the contract value and reduces the risk as the contract is in the money!

Final Thoughts
There are also several levels of intrinsic value of any call or put contract making them less and less risky. The further you move away from the strike price and the higher the intrinsic value – the more secure the option contract is. One thing to keep in mind however is that the most secure contracts are always the most expensive and do not guarantee a return.

Tags: online options trading