Question

Buying an at-the-money put has a greater return potential than buying an out-of- the-money put because it is more likely to be in-the-money. Appraise this statement.

Answer 1

Buying an at the money call option will have higher probability of returning the profits because at this juncture, the strike price is equal to the current market price of the share and it has the highest probability of returning the high rate of return as there is difference almost negligible between both the prices and the option has high probability of getting exercised.

when an option is out of the money option it means that the difference between the current market price and the strike price of option is highest in nature, and the chances of getting that option exercised is very lower in nature so probability of returning the profit is lower