How do you know what strike price to buy?
- Thread starter tradingacct1
- Start date
support on an option? i never knew you can read charts on them. or s&r even mattered. i thought it was all intrinstic/extrinsic value, deltas, underlying, etc that influenced the price movement.
no, i mean the STRIKE price of the option. lol
Actually, it's a very tricky question (which makes me think most people suggesting to read a book did not give it much thought). Many different trains of thought depending on what trade you are putting on. In the end, it's about comparing risk and reward broken down into risk factors of your strategy.
For example, breakeven terminal price is the simplest - take you strike, add the cost of the option and decide if you think the underlying will breach that level. E.g. you are buying a call and think you gonna hold the trade to expiration, you are risking the premium and hoping to collect a reward that's bigger (because you think the market is misjudging the terminal distribution of the stock, if you want science-speak).
For example, breakeven terminal price is the simplest - take you strike, add the cost of the option and decide if you think the underlying will breach that level. E.g. you are buying a call and think you gonna hold the trade to expiration, you are risking the premium and hoping to collect a reward that's bigger (because you think the market is misjudging the terminal distribution of the stock, if you want science-speak).
i see so many strike prices on an options chain and wonder to myself, what the h*ll to do lol. i mean really, do we know what price we want to buy or guess at? i think not, but, it sure seems like the market does. i suppose buying at 3 different prices hedges one's risk in the underlying, but some people i know just pick that strike down to a science and go with it and reap very spectacular rewards not because of luck, but because it was the right thing to do.
is there a way to filter down the best strike prices of an option for that month? or even, best months to trade strike prices for the year? i can imagine IV has a lot to do with it, but not with the individual STRIKE prices!
You should talk to @marsman a.k.a. Botpro/Mutlu... he loves selling calls and puts... he used to make 25% weekly...
The value of an option is directly tied to the movement of the underlying.
the OP is looking for an easy way to find mispriced options while unwilling to read books on the subject. such lassitude is never rewarded.