I think you're mistaken both about probabilities and time values. You have to take in consideration the reward/risk characteristics of the two specific strategies too. Higher probability means less risk and less reward. Expectancy wise all options strategies have the same negative expectancy, and you should decide which one to use only function of your forecast of the underlying price and / or options' implied volatility. For the same expiration, the time value depends on how far itm or otm are those options. You can't say that itm time value is lower than otm time value. Quote from ChrisM: Buying OTM has low probability of winning. However, your friend is right about buying ITM options, as time value of ITMs is lower.
They are bought and sold. In the beginning you should focus on just beeing the proprietor. If you are the proprietor of rights you buy an option, either call (long interest in instrument) or you also BUY a put (short interest in instrument). There is always a CP, either a MM or another trader/investor/HF. When you get a lot of experience in trading options from the buy-side you can start looking at WRITING options (selling calls and selling puts). As a proprietor your max loss is identical to the price you pay +costs, but when you sell options your loss is unlimited. Writing is not for you yet (with all respect coolweb)
Option's price is a matter of supply / demand. If the demand is higher (i.e. you place a large order to buy) that option's price will go up. This will translate in higher IV: meaning that the market (in this case mostly you) thinks that the underlying will move more. In long run market's current assumption (in this case yours) may be proven wrong. Quote from coolweb: I already know that, it is opened by the market maker. I was asking if the price will be increased since I am the only buyer ... so If I buy 5 contracts or 1000 contracts and the price of the ASK of the contract will still be the same regardless of how many contracts?
coolweb, as I trade options for living, here is my recommendation based on your questions: go to http://www.888options.com/ and learn how to use Option Investigator. It is free and gives you general idea how options work and what is probability of your ideas to be successful. Also - at your present level of knowledge I would not recommend you to start any options trading. Options are very complex instruments and you will not learn too much from trading if you have not done your homework. Good luck,
I am not getting into dispute, just trying to explain basics as simply as possible. As I occasionally publish training materials I know from my experience that defining all from the start brings sometimes confusing reactions.