Which Options Strike Price? | OptionsANIMAL

Which Options Strike Price?

This is perhaps the most common question I hear as an options educator.  Why isn’t it an easy process to make a selection?  The simple answer is, “because they are complex investing instruments.”  During my basic options education between 2005 and 2009 I gained a mountain of respect for the options instruments.  Learning and understanding their behaviors and the components involved in determining their values is an important step in the overall educational process.

The components that determine the value of options are these:

  • Equity Price
  • Strike Price
  • Time to expiration
  • Implied Volatility
  • Dividend (if any)
  • Risk Free Interest Rates

Of these components, the biggest ‘wild card’ is the implied volatility.  The concept of volatility is worth studying by itself!  But, that’s not ALL that must be considered in selecting the strike price.  All options’ values can be subdivided into Intrinsic Value and Extrinsic Value.  And, just to keep an options trader on their toes, the listed components only affect the extrinsic value of options!

Serious options investors demonstrate the ability to study in multiple views.  First, take out the binoculars and learn the details of the structures, behaviors, rights and obligations of the instruments.  Then, put them down for a landscape view to see how the structures fit into your overall investing strategy.  By transitioning smoothly between details and big-picture (and applying your developing understanding in a safe environment) you will be able to trade these vehicles successfully.

Emilu Bailes
OptionsANIMAL Instructor

Options Trading Resources

options trading classes * trading examples * option trading education * learn option trading * options trading seminars * options trading school

Posted in

Emilu Bailes

Join 500,000+ Investors

Get the latest class invites delivered straight to your inbox.

Our Students Love Us

Options Animal has been great to work with. There are many trainers to work with who have different styles of teaching and trading. I have found several that I like and learn from. The training they gave me has benefitted me so much that the gains I have made in my trading account has more than paid for my subscription to the lessons. Love this company and their trainers!
I am really happy I decided to subscribe to OptionsAnimal. Trading options is not easy, but OptionsAnimal provides you with all the information you need to trade options successfully. They cover all the different option trades, and, in the higher level lectures, they have algorithms which guide you through the management of trades after they are placed. I highly recommend OptionsAnimal.
Scroll to Top