Hi Merv,

Good questions. Given a choice in a vacuum I'd prefer to make the long side "In the money". The key decision making process however is all about RRR. It involves the combining of many long and short possibilities and seeing which combination of buying this and selling that which produces the best relative RRR. Frequently the best choice for a vertical option spread will literally jump off the page at you if you construct 3 or more hypothetical trades. It will be the very rare instance when the right or better choice involves an ATM option.

Indeed you will see times that a market moves in your desired direction and the option seems to be tied to a post. Jeff K. pointed you in the right direction for answers to this seemingly impossible scenario. There are indeed 2 major culprits ... Time and Volatility.

I would reverse their order of importance however. By a wide margin TIME is the real numero uno enemy of long option holders ... and it gets WORSE the closer you get to expiration day. Time decay is not linear it is geometric ... it accelerates as you move closer to expiration

Volatility comes in two forms ... historical(price) and IMPLIED. It is IMPLIED VOLATILITY that Jeff K refers to in his fine answer. Together, they really do make life hard for long option owners.

In simple terms there is NO WAY to avoid the effects of these 2 gremlins. That's why I counsel traders to avoid. if at all possible, buying options outright. By using spreads you do about as effective a job of mitigating the effects of time decay and adverse changes in IV as you can hope for.

There are other ways to do this but to master those concepts and strategies is a game of great expenditures of time, money and brain power to accomplish a marginal, at best, edge. Spreads are uncomplicated, easy to manage ... because you manage them exactly as you would a futures trade with S&R ... and they have both defined risk and defined profit potential keeping your mind from running amok with wild expectations.

Hope this helps, Merv.