How I pick strike prices for options
I used the following methods:
1) Greeks
Options traders often refer to the delta, gamma, vega, and theta of their option positions. These terms are known as the Greeks, and they provide a way to measure the sensitivity of an option's price to quantifiable factors. I determine strike price using delta which measures the sensitivity of an option's premium to a change in the price of the underlying asset.
2) Risk appetite
A relatively conservative investor (like me) might opt for a call option strike price at or below the stock price (ITM), while a trader with a high tolerance for risk may prefer a strike price above the stock price (OTM). Similarly, a put option strike price at or above the stock price (ITM) is safer than a strike price below (OTM) the stock price.
3) Options price chart
I find the chart useful to visualize the risk. For example I know at what share price will achieve profit and if my opinion has unlimited loss. Moomoo has this feature.
1) Greeks
Options traders often refer to the delta, gamma, vega, and theta of their option positions. These terms are known as the Greeks, and they provide a way to measure the sensitivity of an option's price to quantifiable factors. I determine strike price using delta which measures the sensitivity of an option's premium to a change in the price of the underlying asset.
2) Risk appetite
A relatively conservative investor (like me) might opt for a call option strike price at or below the stock price (ITM), while a trader with a high tolerance for risk may prefer a strike price above the stock price (OTM). Similarly, a put option strike price at or above the stock price (ITM) is safer than a strike price below (OTM) the stock price.
3) Options price chart
I find the chart useful to visualize the risk. For example I know at what share price will achieve profit and if my opinion has unlimited loss. Moomoo has this feature.
4) Purpose for buying options
Sometimes I buy put to protect my stocks - lower limit. I may buy a call (plan to buy the stock at low) when the stock is in uptrending. I may sell a covered call or put to earn passive income. The strike price will depend on the purpose of your trade. The important thing is you must know what you are doing. Don't copy blindly what others did.
5) I learn from articles posted by Investopedia and Moomoo.
1. Options Basics: How to Pick the Right Strike Price
2. Using the "Greeks" to Understand Options
3. Understanding Strike Prices: A Beginner's Guide
1. Options Basics: How to Pick the Right Strike Price
2. Using the "Greeks" to Understand Options
3. Understanding Strike Prices: A Beginner's Guide
Disclaimer: The post is not financial advice, just for educational purposes. Short selling options are very risky and may end up in unlimited loss. Please do due diligence (DYODD).
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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