Thread by @stocksnipa

🔫🚨Choosing Strikes Thread🚨🔫

(1/12) One of the most common questions among option traders is which strike to choose. The best strike is all determined by the plan. I select my strike based off time, value, and risk!

(2/12) In certain situations, different strikes carry different levels of risk and reward. Choosing the wrong strike can result in unnecessary time decay and/or loss of premium.

(3/12) Choosing the right strike can not only improve win percentage, it can yield higher returns. Different strikes can be played in different situations because strikes carry different levels of risk and reward.

(4/12) It’s important to understand ITM vs OTM price action. (In the money/ Out of the money) Both types carry different forms of risk.

(5/12) ITM contracts will often move dollar for dollar for the particular stock minus premium decays. This means contracts can increase .15 for a 15 cent move on the stock.

(6/12) With the ability to generate these gains, they also may move parallel to the downside as well. This can represent high risk in a small move.

(7/12) OTM contracts face a different kind of risk. OTM contracts lose more theta value than ITM contracts. It’s important to understand options out of the money expire worthless, and this is priced in the decay.

(8/12) As the option approaches expiration, it will lose value factoring in less probability of it moving ITM due to less time.

(9/12) Generally the breakeven price on options are the strike plus premium. This means that if the contract was $1.00 and strike was $100. The option would need to close at $101 to breakeven.

(10/12) When contracts are ITM, they will reach a delta value of 1 for calls and -1 for puts. This is the max delta value. The closer the option is to strike, the higher the delta value will be

(11/12) The delta value is determined by the distance between the strike and the current share price. If the underlying share price moved closer to the strike, this would result in a delta increase.

(12/12) Thank you for reading! I hope you found this informative! Be sure to like, retweet and follow for more!

If you haven’t already be sure to check out yesterdays Identifying Trends Thread + Monday’s Avoiding Fake Outs Thread!