How do you determine what strick price to but to make the most profit?
How do you determine what strick price to buy on an option to make the most profit?
Answers
2183 points
ChaosNantuko answered 7 months ago …
It depends on where in the move i think we are, and my time frame. If I'm trading an expected reversal, then I'm expecting a fairly large move, and may consider using slightly OTM options.
If its on a breakout, then some of the move has already occurred, and so I'm going to look at ITM, or ATM options.
Overall though, I believe its much better to trade option spreads (vertical spreads, iron condors, etc) then individual options.
731 points
thinker70 answered 7 months ago …
If you have to ask the question then you are probably not experienced enough to pick your own options and should rely on a professional to select the best month, strike price and how much to pay for an option.
With as high as 80% of options expiring worthless it is not a field for amateurs to play in.
435 points
larryat36 answered 7 months ago …
Without seeing the stock its fundamentals and technicals there is no way to answer this question. I would suggest that you get some education on options before you start trading them. They can make quick moves against you if you do not know how to trade them as well as hedge them against great losses.
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2082 points
alanj answered 7 months ago …
Options that are the farthest OTM (least expensive) carry the greatest rewards, but they also carry the greatest risk
Generally speaking you should be looking for options that are ATM, slightly ITM, or slightly OTM. You should also be looking for an expiration date that is 6 months away or longer. This will give the option time to move in you direction. And also, you what 6 months + options because options closest to the expiration date will lose more value then the farther away options based upon the time decay factor. After a few months and it hasn't gone your way roll it over to another longer expiration date. (Example: you start with a 6 month. Close when it gets to 3 or 4 months, while it still has some value. Then buy another 6 month). At about the same price that you started with, not the options (the one that you have been holding for several months) current price. Another words, you will have to add money to the option that you close in order to open another option at a farther away expiration date, but approximately the same distance away from ATM or ATM if that is what you started with. Options with a closer expiration date are more riskier than the farther away dates because of the time decay factor.
The least risky options are the ones that are the most ITM or the most expensive.
Another thing to consider is volume. You want an option with plenty of volume so when you want to sell (close) you won't have a problem finding a buyer.
