How To Choose The Right Strike Price To Increase The Odds Of Success

Choosing the right strike price when trading options is just as important as the direction of the market. The right strike price can mean the difference between trading success and trading failure. The more often you pick the right strike prices, the higher your odds of success over the long term will be.

High delta for quick market moves

When buying options you should choose 1 of 2 types of strike prices.

Buying closer-to-the-money options gives you a higher delta, which means your options will respond to every dollar movement of underlying stock sooner and stronger. Likewise, buying at-the-money options (or options that are lower/higher than the actual stock prices) reduces your risk that the stock has to make a small move for your options to be in-the-money.

Can you guess both the direction and timing?

As an option buyer you have to not only predict the direction of the market (put/call) but also the magnitude of the move. How fast will the market get to your target? Will it take 3 months or 6 months?

In the world of options trading just 1 day can make the difference between profits and losses. If you buy an option at the strike that you think the underlying security will move to, you’re likely to lose money because you paid premium for the options time value. If your right about the direction but dead wrong about the timing – you lose.

Deep OTM options are like lottery tickets

Deep-out-of-the-money strikes appear attractive for the “novice” options trader because of the low absolute dollar value of the options. But remember that these options have a low dollar value because it’s highly unlikely they’ll ever be in-the-money.

I relate this to buying a lottery ticket. Sure it’s only $1 but how likely are you to ever make money on that lottery ticket? Last time I checked you were more likely to get hit by lightning TWICE in the SAME day!

Start Our Free 4-Part Video Course And Learn How To Make Smarter Option Trades. . .

I've been told by tons of people that you've got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio magically overnight.

And I'm sure you've heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money. This course is different.

Free Options Trading Course

You see, there is no "magic secret" to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I'll go over the exact checklist I use for selecting trades each month!