How far should be a strike price away from the spot price so as to call it a
ATM, slight OTM, Deep OTM, slight ITM and deep ITM option? I mean what should be
There is no hard and fast rule that this much is slight OTM & this much is deep OTM. This is just some words used colloquiallly.
ATM - At the Spot Price
Slight OTM - There is every chance of it becoming ATM or ITM
Deep OTM - You Believe there is almost no chance of it becoming ATM or ITM
Slight ITM - There is every chance of it becoming ATM or OTM
Deep ITM - You believe there is almost no chance of it becoming ATM or OTM
You yourself have to set Levels or Points or Percentage to the belief. For definitions of the terms you can always google.
I hope I answered your query.
Thanks @GoutamHebbar . I have gone through the subject, but wanted to know the price difference. In your opinion, if suppose spot = 2000, then which strike price we can call OTM, slight OTM, ITM or slight ITM?
In your example of 2000 as Strike Price
Slight ITM - 1900 CE and 2100 PE (5% Variance)
Deep ITM - 1700 CE and 2300 PE (15% Variance)
Slight OTM - 2100 CE and 1900 PE (5% Variance)
Deep OTM - 2300 CE and 1700 PE (15% Variance)
I’m not factoring in premium in any of the following cases. If premium is much higher then even an ITM option is not at all profitable.
@GoutamHebbar Bro so you want to say that the these terms are completely dependent on the person’s perception ? For you let’s say 1000 may be deep ITM, for me maybe it’s ITM. Is it?
Yeah correct. Its totally dependent on Peoples perception. If the Strike and CE/PE are same its ATM. If its 1 rupee less or more somebody may say its OTM/ITM but some people even if its 100 points less or more still consider it as ATM given the level of volitality.
Today NIfty is at 17000 Level. Some people say 12000 & 22000 level is the deep OTM but some people say 5000 to 50000 is deep OTM because I can’t say for sure that market will not touch between these points.
Thanks bro @GoutamHebbar agree with you.