As we know, options, unlike futures, can vary widely on their value given the greeks. Futures have a Delta of 1 and move directly in line with the price movement of the stock. Options, on the other hand, usually have a Delta of .30 just out of the money, .5 at the money, and .7 just above in the money (give or take given the strike price intervals). Then you have to take into account the other deltas (importantly Gamma for this short term scenario). Given the following hypotheticals: AAPL options contract at 1.30 just out of the money with a Delta of .30 and a Gamma of .06. AAPL options contract at 2.75 at the money with a Delta of .50 and a Gamma of .08. AAPL options contract at 4.30 just above in the money with a Delta of .70 and a Gamma of .06. My question is - taking into account commissions of roughly .75 per contract flat ($1.50 round trip) would it be more profitable to buy 10 OTM contracts, 5 ATM contracts, or 3 ITM contracts on a scalp (lets say at the open) with a relatively big move? I have been trading 10 contracts of 1. (OTM) with good success but commissions are a killer. If I could get the same or better results with 3. (ITM), it would greatly reduce my commissions. Also, another concerns would be filling limit orders with the faster price movements of a 3 than a 1 with the basically double delta. EDIT: My results on the market data available right now on TOS is as follows - It seems to say that buying more cheaper contracts is the way to go for a short term scalp. However, this is based on a big move of a hypothetical $1 dollar and investing roughly the same amount. It also is not taking into account Gamma which may make some difference. Also, given an unlimited supply of money, you have to take into account (A.) being able to get rid of a larger number of contracts and (B.) investing higher amounts if the move is a highly probable one to get the most out of the move even though (10contracts of a ITM with higher delta will give you back more but will be more expensive - if filling orders for more contracts is a concern). Most importantly, the below does not take into account losing trades - A 10 contract move is a guaranteed $15 commission if flat or lose vs a $4.50 commission at 3 contracts (at .75c flat each side). With a low win rate, this is particularly important. Overall, the below seems to indicate to buy as many contracts as affordable on a highly probable move. Please criticize at will to illuminate this conundrum.
Any reason you can’t just trade the underlying. Not an option guy but trying to scalp options sounds way less liquid/reliable then getting into the underlying for a quick trade.