How to Pick Strike Prices
Every trade comes down to one question: which strike do you actually choose? Here is a simple framework that turns a wall of numbers into a clear decision, whether you are buying or selling.
- How delta gives you the rough odds of a strike paying off
- The trade-off between a cheaper strike and a surer strike
- How to pick a strike when you buy, and when you sell
- A simple rule of thumb you can use on any trade
You have decided to make a trade. You are bullish on Apple, you want to buy a call, so you pull up the option chain and... there it is. A wall of strike prices. $185, $190, $195, $200, $205, $210, and on and on. Which one do you actually buy?
This is the question behind every trade in this course. The good news is that picking a strike is not guesswork. It is a simple trade-off between two things: how much it costs, and how likely it is to pay off. Once you can read those two numbers, the wall turns into a menu.
Delta: Your Rough Odds
Every option comes with a number called delta. It does a few jobs, but the one that helps you here is this: delta works as a rough estimate of the chance the option finishes in the money.
A 0.30 delta is about a 30% chance. A 0.50 delta, roughly a coin flip. A 0.70 delta, about 70%. It is not exact, but it is close enough to steer by, and it is sitting right there in the chain.
So as you slide up the strikes, two things move in lockstep: the price you pay, and your odds. Lower strikes cost more and have better odds. Higher strikes are cheaper with worse odds.
Cheaper Strike or Surer Strike?
Now you can see the real decision. It is not "which strike is best." It is "how much certainty do I want to buy?"
A deep in-the-money strike like the $190 call is expensive, but it behaves almost like owning the stock and it wins most of the time. A far out-of-the-money strike like the $210 call is a cheap lottery ticket: it usually expires worthless, but when it hits, the percentage gain is huge. The at-the-money $200 call sits in the middle, a balanced bet.
(in the money)
(at the money)
(out of the money)
When I was advising clients, the most common mistake was buying the cheapest strike just because it was cheap. A $130 lottery ticket feels harmless, but a 30% chance means it usually loses. If you want a trade to actually work most of the time, you have to pay for the odds.
Picking a Strike When You Sell
When you sell, the same delta number becomes your safety dial. The strike you sell sets how likely the option is to be a problem.
Say you are selling a put for a credit, hoping it expires worthless. If you sell a 0.30 delta put, that is roughly a 30% chance it finishes in the money, which means about a 70% chance you keep your credit clean. Sell closer to the price and you collect more, but you are more likely to be tested. Sell further away and you collect less, but you sleep better.
- Lower delta, around 0.20 to 0.30
- Higher chance of keeping the full credit
- Smaller premium collected
- Easier to hold without stress
- Higher delta, around 0.40 to 0.50
- Fatter premium collected
- More likely to be tested or breached
- Needs more attention
Many income traders settle around that 0.30 delta short strike as a starting point: a roughly 70% chance of winning, with a credit worth collecting. It is a balance, not a rule, but it is a sane place to begin.
A Simple Rule of Thumb
Strip away the detail and strike selection comes down to one honest question: how much do you want to pay for certainty?
- Delta works as a rough estimate of the odds an option finishes in the money.
- Lower strikes cost more but win more often; higher strikes are cheap but rarely pay.
- When buying, choose how much you want to pay for certainty.
- When selling, the short strike sets your odds; around 0.30 delta is a common starting point.
- The cheapest strike is usually the worst odds. Pay for the probability you actually want.
Pop Quiz
Three quick questions to lock it in. Pick an answer and the explanation shows up right away.
An option has a delta of about 0.30. Roughly what is the chance it finishes in the money?
Delta doubles as a rough probability. A 0.30 delta is about a 30% chance of finishing in the money, which is why a seller sees it as roughly a 70% chance of keeping the credit.
Why is the cheapest out-of-the-money strike often a trap for buyers?
A cheap strike is cheap because it rarely wins. Buying it feels harmless, but a ~30% chance means it loses most of the time. You have to pay for better odds.
You want a credit spread with a high chance of keeping the credit. Where do you sell?
Selling further out, around 0.30 delta, gives roughly a 70% chance of keeping the credit. You collect less, but you win more often and sleep better.
Bottom Line
Picking a strike is not a mystery, it is a dial. Delta tells you the rough odds, the price tells you the cost, and you choose the balance that fits your goal. Want certainty, pay for it with a lower strike. Want a cheap swing, take a higher one. Selling for income, lean around 0.30 delta. The wall of numbers was never random, it was a menu the whole time.
Next up: How to Choose Expiration Dates. You have picked your strike. Now pick your deadline. The amount of time you give a trade changes its cost, its decay, and its odds just as much as the strike does.