My approaches for strike selection:
I am always studying the charts of the S&P and following it. I study support and resistance, trendlines and moving averages to give me the best picture possible of what is happening in the market.
Basically I look for option strikes that are outside support and resistance, have short strikes with deltas of 0.10 or less, currently I average around 60 - 80 points OTM. An additional guide recently discussed was taking the ATM straddle and doubling and adding and subtracting that value from the current index value as an approximation of a 2 sigma move.
Combining all of these together is how I choose my range of strikes.
As for returns, I live for 3 - 5% based on the premium/margin at risk. Most of the time I am in the 2 - 3% range depending on time to expiration. If you look to strikes based on the criteria I mentioned above then you will really aonly be able to get 2 - 3% on average. If you choose to do Iron Condor, then returns can be 5 - 10% or more.
It is kind of hard to blindly select strikes. Since I follow the S&P so much I also get a better feel for past support and resistance levels in guiding me in strike selection.
My decision is usually biased towards put spreads due to the IV skew which allows me to go further OTM to get my % returns. I also base my decision on market conditions. For example, since we are bullish for the year to date, I am only in put spreads.
This is just a general overview but sums it up nicely. Everyone here adds their own experience and risk tolerance to refine the criteria to better suit their own risk and trade management.
I mainly focus on spreads of 5, 10 and 15 points with no clear preference for either. I usually land in the 10-point range.
This strategy has significant risks and should not be ignored. Hope I did not leave anything out lol.
Quote from Heatheranderson:
I just joined this messageboard.I must say i am fascinated by this style of trading(month to month condors and spreads). I am also glad you shared the prego fly repair strategy.
what i would like to know is how do you decide what strikes to open when deciding on a trade.Is it based on how many levels of support you have in between or based on risk/reward or something else?.
thanks in advance...
