How To Choose The Best Option Strike Price is a question I had to dig for an answer extensively in 2011.
How To Choose The Best Option Strike Price is common. Because there are 100s of strike prices to choose from.
I blogged about an extensively researched article, Can Day Trading Make You Rich For an Exhilarated Excuse Free Life? If you’ve not read it, go take a peak now.
But choosing the right strike price is definitely a pain.
Ohh… If you are an Investor, I got some gems for you with Picks of Multibagger Stocks and How to Pick Multibagger Stocks.
99% of the Traders Turn Investors the Second Day – Mr.Warren Buffet
Options Trading as a Career Path:
I’ve suffered from this confusion and I took the route of backtesting on Ninja Trader for 10 years.
This is a tedious route to take. Just like in the Matrix movie, when asked to select a red pill or a blue pill and you select the RED one. As a result of this, you are supposed to go through all the hard work 🙂
It’s easier to read than said and did 🙂
In my career of 8 years as a full-time trader, I’ve always used this strategy of how to choose an option strike price.
I now give you the 10 years of my research on a silver platter for you.
Get ready to jump on the roller coaster ride with me to find how to choose the best option strike price for profitable trading.
Trading is PROFITABLE Only if You Have The Right Mindset and Discipline – Ashok Kumar N Rao (Myself 😃)
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2 Rules of Trading. 1st is Never Lose Money. 2nd is Never FORGET The 1st Rule – Mr.Warren Buffett.
Disadvantages Of Trading Options Without Knowing What To Trade Daily
- It’s such a pain in the wrong place to always keep a track of fast movers. After the move, you also have to see if options will make money. Because. options lose money when stock peaks and starts consolidating.
- So by the time, you select the right stock, options value would have started decaying.
- Also, you never know how much liquid the options of the stock moving up are. As a result, you may be stuck without being able to liquidate at a profit.
- I’ve been tracking Lakshmi Mills Company Ltd. It moves 20 – 50 points daily. But volumes are so low that, you can’t sell stock at profit. You’ve to liquidate and get out, though at loss. Today it’s moved 152 points.
- Talking of the stock price move, the delta of the options doesn’t follow the hike in price. It shoots exponentially. As a result, you are either in for a big profit or a very big loss.
As a result of such agony, you are up for a big enthralling journey on a roller coaster. It’s more like gambling than trading.
So I enrolled myself if it’s possible to be sure if day trading is a good idea with options trading. After this, I started looking for the best pricing to start options trading in less budget. Let’s now start our journey to a better life together.
Tighten your seat belt, as the road is a bit jiggered ahead.
Do More of What Works and Less of What Doesn’t – Steve Clark
What leads to the Research on how to choose an option strike price?
- I was puzzled by a need to find the stock or an option to trade daily. As a result of this, I had to juggle different stocks and options regularly and endlessly.
- For every stock, there are 22 levels of options strike price above and below. Because of this, the process of selection turned to be more tedious than the Red Pill.
- Daily stocks take a new path to drive themselves either high or low. As a result of this, determining the definitive trend it moves before it happens was difficult.
- Though some stocks move up or down, I’d look at the liquidity part. For Ex.) I’d once traded in Lakshmi Machine and I suffered a loss though I was in profit. Because, liquidity was so low that, to exit, I’d have to sell at a loss!
- Finding the news of 3000+ stocks or even indexes to find it moves high or low was a daunting task!
So looking at the above hardships, don’t you feel we need an easy exit to find a definitive stock to trade?
As a result of all these, I started finding the easy route to success of selecting an asset to trade.
The underlying asset should be very liquid, have moves always, and shows its power of trend to earn more.
SUCCESS Consists of Going from FAILURE to FAILURE Without Losing Enthusiasm – Winston Churchill
How To Choose The Best Option Strike Price?
See there are many factors I notified about the agony I’d to face when choosing the best strike price to trade above. Having gone through a great ordeal with a selection of what to trade when I was desperate.
I’d to figure out a way outta the ordeal to select stocks to trade daily. So here’s what I found and here’s how I solved it.
So here’s how to choose the best option strike price:
- In my research back for the last 10 years, I selected every option price that was index-based, Nifty based. Remember, I started my journey of analyses in June 2011. So 10 years earlier in 2001, options had already been launched.
- When I selected the options out of the money, then I found that ROI was very low.
- When IN the money options were selected, very high risk was involved and too much time decay took place.
- At this time, when I selected lightly In the money to slight out of the money, I found returns were good.
- Then I selected the options within the range of 100 – 200 and found, that the loss percent went high.
- So, I selected the range of premium within 50 – 100 and I saw loss was less and profit was very decent.
- As a result, I had my EUREKA movement. But I did not stop my analyses there.
- To find out why the ROI was decent and the risk was low, I checked the Delta for a range of 50 – 100 premium options.
- Then I got a staggering find. Delta range was well within the range of 0.2 – 0.63 all the time even at the time of expiry.
- Because I see the delta was stable, I inched up a bit up to the premium till 120.
- To only find out, the range of delta which was safe for traders is 0.2 – 0.7.
- Because I had a stable delta, I could research which premium was within the 0.2 – 0.7 value of the delta.
- As a result of this, I found that premiums within 50 – 110 were the safest and best to trade.
- Voila”’. I had the best find of my lifetime.
So now I know what’s safe and what’s the best options strike price to trade.
Trading is 10% Buying, 10% Selling and 80% Waiting
So to answer your question:
How To Choose The Best Option Strike Price?
A) By selecting the index options premium within the range of 50 – 110. This usually is at any point within the delta range of 0.2 – 0.7.
Learn to Sit Back and Observe The Markets, Not Everything Needs a Reaction
See this analysis proved to be the greatest boon to anyone who is contemplating strike prices to choose from.
The journey for technical analysis to analyze so much data took me around 1 year and 7 months.
As a result, I now choose options within the range of 50 – 110 in premium, for a CE and PE.
So now how to select the best options price? Aah.. You either have to guess now or enroll in my Nifty Intraday Options course.
So now, I say goodbye and pass on the ball to you to be thrilled in the journey to trade options which I feel is better than stock trading.
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Happy Trading and Happy Money Making!