Sure, but if that's your investment thesis you'll get a better return by buying an ATM call than a (relatively safer) deep ITM call.

But then you'd own the option so you'd benefit from the volatility and can quickly cash out, right?

Yes, you cash out the options when the IV spikes when swings up.

So, back to the original question: wouldn't OTM options make more sense in their position?

If the bet is wrong, OTM options expire worthless. ITM options give you less risk, but for a premium (you buy fewer contracts with the same amount of money). But still with more leverage than outright buying the stock.

This is captured in the concept of Delta one of the “greeks” which is a parameter in the black scholes equation and solution that tries to measure the pricing movement of the option relative to the price movement of the stock. Owning stock has a delta of 1. ITM options have a delta closer to 1 but not exactly 1, OTM options have a delta closer to 0, but not exactly 0. ATM options of a delta around .5.

An insider trade like this isn't about managing risk and things expiring worthless, it's about maximizing expected value while not making it too sus.

If you bought a deep itm call, it would behave almost exactly like owning a share. The stock goes up 5% , your call goes up 5% + 1% let's say for the increased iv.

If you felt like there was a 75% chance it would go up 5% and a 25% chance it goes flat or down, then your best expected value would be buying a otm call. The math would look something like ev= .75 * 400% + .25 * -100%

And even then, nobody holds an option that went the wrong way to 0, so the -100% term would be less as well.

I don’t think it was an insider trade. But to use the articles example, Microsoft is so large and diversified that the headset contract news might not swing the stock price. Especially if there is broader negative market news.

Fair enough, but then if you’re having to hedge that much against downside risk, it doesn’t feel like insider trading. The whole problem with insider trading is that have special knowledge of which way it’s going to go. At the point where you’re having to protect against the possibility of being so wrong, that doesn’t feel like acting on insider knowledge, and it’s more like “interested outsider” trading.

I personally don’t think it was insider trading so in that sense I completely agree with youx