Buying closer-to-the-money options gives you a higher delta, which means your options respond to every dollar movement of stock sooner and stronger. In some sense, buying at-the-money options reduces your risk as the underlying security only has to make a small move for your options to be in-the-money.

It’s difficult to get both the direction and the magnitude of the move correct, though. The at-the-money option makes the magnitude issue less of a problem. This may seem somewhat counterintuitive, because the premium is higher as you move toward the money.

If you buy an option at the strike that you think the underlying security will move to, you’re likely to lose money because you paid premium for the option without the underlying security moving through the strike by expiration.

The way-out-of-the-money strikes appear attractive because of the low absolute dollar value of the options. But keep in mind that these options have a low dollar value because it’s highly unlikely they’ll ever be in-the-money.

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