# What is the reason behind the trader bought OTM option?

The following is the option alert for UBER stock. I interpret this as the trader bought 19 CALL option contracts at the strike price of \$31.

He should have chosen the strike price of \$29 or \$30. I assume that the reason may be he can pay low premium at \$31. Is it that the reason? Is some technical data from the option chain help to find the right strike price.

Uber Technologies Option Alert: Jan 17 \$31 Calls Sweep (19) near the Ask: 1000 @ \$0.6 vs 5648 OI; Earnings 2/4 Before Open [est] Ref=\$28.695

Options provide leverage. ITM options have less of it and OTM options have more of it.

Here's an assignment on how to see it. You have \$1,000. Set up a spreadsheet with the the strike prices and premium cost of your six options. Determine how many calls that you can buy at each strike price (fractional contracts are allowed in this exercise because you want to compare an equi-dollar investment in each position). Then determine the P&L of each position at various expiration prices.

For example, the \$27 call costs \$2.50 so you'll buy 4 contracts. Break even is \$29.50. At \$30 it has a profit of \$200 (4 x \$0.50) and at \$31 a profit of \$600 (4 x \$1.50).

Let's say that UBER will rise to at least \$30. What you will find out is that at \$30, the three calls with the lowest strikes will make money and the two highest will lose the entire \$1,000. However, somewhere around \$32.50, the 3 highest strikes will each make more than any of the lower strike positions. The higher UBER goes, the greater the multiplicative effect.