Automated options trading has changed the way traders approach the market. But to truly benefit from it, you need to understand basic options concepts like ITM (In The Money) and OTM (Out Of The Money). Choosing the right type of option is essential for building smart, profitable strategies—especially when you’re automating your trades.
In this guide, you’ll learn how ITM and OTM options work, how to pick between them, and how automated options trading tools can help you execute smarter strategies.
What Is ITM in Automated Options Trading?
In The Money (ITM) options are already profitable at the current market price.
- Call Option Example: You buy a call option. The stock is trading above your strike price → you’re in the money.
- Put Option Example: You buy a put option. The stock is trading below your strike price → you’re in the money.
✅ Key traits of ITM options:
- Higher premiums (you pay more upfront)
- Higher probability of profit
- Lower risk, steady return
- Popular for stable or low-volatility markets
What Is OTM in Automated Options Trading?
Out of The Money (OTM) options are not yet profitable and require price movement to become valuable.
- Call Option Example: You buy a call, but the stock is still below your strike price → you’re out of the money.
- Put Option Example: You buy a put, but the stock is still above your strike price → also out of the money.
Key traits of OTM options:
- Lower premiums (cheaper to buy)
- Lower probability of success
- Higher risk, but high potential reward
- Ideal for volatile markets or big directional bets
ITM vs OTM Options: Risk vs Reward
| Option Type | Risk | Cost | Reward Potential | Best Use Case |
|---|---|---|---|---|
| ITM | Lower | Higher | Moderate | When you want stable profits |
| OTM | Higher | Lower | High | When expecting major price moves |
Choosing Between ITM and OTM for Automated Options Trading
Here’s what to consider when deciding:
- Risk Tolerance
- Prefer stability? Choose ITM.
- Willing to risk for higher rewards? Go with OTM.
- Market Conditions
- Expecting sideways or slight moves? ITM fits better.
- Expecting breakouts or strong trends? OTM can pay off big.
- Capital Available
- Limited capital? OTM lets you trade more contracts for less.
- More capital? ITM offers steadier performance.
- Strategy Goals
- Want steady income or hedge? Use ITM.
- Swing trading or event-driven strategy? Use OTM.
Many seasoned traders use a mix of both to balance risk and reward.
Automate Your Options Trading
Want to remove emotions and follow your strategy with precision?
Try automated options trading with tools like Pick My Trade. You can connect your strategies to platforms like:
- TradeStation option trading
- Rithmic
- Interactive Brokers
- TradeLocker
- Tradovate
With automation, you can:
- Automatically enter or exit based on signals
- Set stop-loss and take-profit levels
- Avoid overtrading and emotional decisions
Automating your strategy helps you stay consistent, especially with OTM trades that require quick execution.
Final Thoughts
Whether you go for ITM or OTM options depends on your goals, risk profile, and market view. ITM offers safety and steady returns. OTM brings bigger potential gains but at higher risk. By combining this knowledge with the power of automated options trading, you can level up your strategy.
Explore automation using TradeStation for option trading with tools like PickMyTrade—and start making smarter, faster, and more consistent trades.
Also Checkout: Auto Trading with RSI Hammer on TradeStation
