I think it is a misconception that a lot of people think that the margin is higher for ITM and OTM options. In general because of the put call parity and the way SPAN margin work (I am referring to futures options and not stocks options) the ITM and OTM margin is almosts similar.


It is also not true that selling OTM will allow you to sell more contract.

OTM has no intrinsic value thus the margin is low and premium is low
ITM has intrinsic value thus the margin is high and premium is high too

when you sell a ITM options even thou margin is high but remember you collect a lot of intrinsic value and this is added back to your trading capital.

If you work it out the margin is almost similiar

Good point there Dave. More intrinsic value in options selling will add on to the 'equity with loan'. I forget about this point.