📘 Lesson 9: Choosing the Right Strike Price & Expiration — The Key to Smarter Trades
🧠 Core Concept
Your option’s strike price and expiration date determine how much risk, reward, and time you have in a trade.
Picking the right combination is just as important as predicting direction.
🎯 Part 1: Choosing the Right Strike Price
📊 What Is a Strike Price?
It’s the fixed price at which you can buy (call) or sell (put) the underlying stock.
🟢 Calls – Bullish Setup
| Outlook | Strike Selection | Why |
|---|---|---|
| Very Bullish | Slightly OTM (e.g., +5%) | More profit, cheaper premium |
| Moderately Bullish | ATM (At The Money) | Balanced risk/reward |
| Conservative Bullish | ITM (In The Money) | High delta, safer, costlier |
Example:
AAPL is $100
- $95 Call = ITM → safer, more expensive
- $100 Call = ATM → balanced
- $105 Call = OTM → cheaper, more risk
Dive deeper into what ITM, ATM, & OTM are.
🔴 Puts – Bearish Setup
| Outlook | Strike Selection | Why |
|---|---|---|
| Very Bearish | Slightly OTM (e.g., -5%) | Cheaper, higher reward |
| Moderately Bearish | ATM | Balanced |
| Conservative Bearish | ITM | Higher delta, more protection |
📐 Use Delta to Guide You
| Delta Value | What It Means |
|---|---|
| 0.80–1.00 | Deep ITM, expensive, stable |
| 0.60–0.75 | Sweet spot for directional trades |
| 0.30–0.50 | OTM, riskier, lower probability |
Beginners should focus on Delta 0.60–0.75 for balance between risk & reward.
⏳ Part 2: Choosing the Right Expiration Date
🗓️ Time Is a Weapon or a Trap
Options lose value over time (Theta), so time must be chosen carefully.
🔑 General Guidelines:
| Time Frame | Use When… | Notes |
|---|---|---|
| 0–7 Days | High-risk, quick moves | Avoid unless experienced |
| 8–30 Days | Short-term swing or catalyst trade | Watch Theta closely |
| 30–90 Days | Safer for directional trades | Less decay, more flexibility |
| 90+ Days | Long-term bets or LEAPS (investor-style) | Expensive but more stable |
✅ Best for Beginners:
- Start with 30–60 day expiration
- Pick expiration after earnings, not before
- Avoid buying same-week options unless part of a strategy
⚖️ Summary: Smart Strike + Time = Better Odds
| Setup Type | Strike | Expiration | Best For |
|---|---|---|---|
| Conservative | ITM (high delta) | 30–90+ days | Beginners, stability |
| Balanced | ATM | 30–60 days | Directional swing trades |
| Aggressive | OTM (low delta) | Short-term (≤14 days) | Experienced traders only |
✅ Quick Quiz
- What delta range is ideal for beginners?
- Should you trade earnings with short-term options?
- Which loses value faster: 7-day or 60-day option?
🧠 Answers
- Pick options with delta between 0.60 and 0.80 — they move more like the stock and are easier to manage.
- No. They lose value fast after earnings, even if you’re right. Too risky for beginners.
- 7-day options lose value faster because they expire soon — time decay hits harder.
Check out various strike prices and expirations in our very own Options Chain.