From Theory To Practice - July 1, 2021 - Why OTM Premium is Better than ITM Premium

published 3 weeks ago by tastytrade, Inc.

Just the other day, we experimented with selling a slightly ITM Put for WBA earnings in the morning. Turns out, we were dead wrong on the directional move in the stock, as WBA is falling hard today. Nevertheless, this experience illustrates perfectly why we much prefer OTM premium over ITM premium, when it comes to establishing new positions on order entry. While this might seem obvious to the experienced traders out there, it's very important to drive this home for newer traders that are just getting their feet wet.

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