in the money vs out of the money options, whats the difference?

I would also like to know which is best to trade and why, thanks you

At The Money

An at the money option contract is one that is "pregnant" with intrinsic value, meaning it is nearing profitability. If the strike price in an options contract is 1.1700 and the current market price of the underlying future is 1.1675, then such a contract can be said to be at the money.

In The Money

An in the money option contract is one that is already valuable meaning its strike price is equal or greater than the current price of the underlying future. If the strike price in an options contract is 1.1700 and the current market price of the underlying future is 1.1725, then such a contract can be said to be in the money.

At the money contracts have no value but their moneyness potential is very high so option traders always watch out for them. In the money contracts are already trading at their strike price or better so they are already in profit and if exercised, the option holder will make money.

At the money means very near the money (but not yet in the money). It is only the exchange where these options are traded, that can determine if a contract is at the money or not. There is something called the "strike width" which is the distance (in pips) between different strike prices; the exchange can adjust these strike widths causing a contract to move from out of the money to at the money.

In the money contracts live up to their name as the current market price of the underlying has already caught up with the strike price that was agreed on in the contract.

Let me also add that for options contracts, the premium you paid to buy the contract could affect its profitability in the end. If you bought a put option worth $100 by paying a $50 premium, and at expiry the underlying future is worth $90, then you will have to sell the underlying for $90 and make a $10 profit. However, by the time you subtract the premium of $50 from your $10 profit you will be left with a -$40 loss.

Also, if the premium you paid for a contract is $10 and the strike price in the option contract is $100 and at the time of expiry the price of the underlying is exactly $100, you will not make any profit if you exercise the contract. However, if at the time the contract expires the price of the underlying is above the strike price (say it is $150) then your profit will be ($150 -$100 - $10) = $40. You must always subtract the cost of the premium when calculating your final profit/loss.

I think "at the money" often means when strike price equals current futures market price. Ath the money is not yet a profitable contract because by the time you deduct cost of buying the contract, it collapses back into unprofitability.

In the money is when the option is really in profit because current market price has already exceeded strike price so even if you deduct the premium (cost of buying the option) chances are you will be left with a profit (except the premium is very high)