How to Choose Strike Prices

Choosing the right strike price is the single most important decision in options trading. Pick too aggressive, and you'll get assigned constantly. Too conservative, and you won't earn enough premium. Here's how to find the sweet spot.

The Strike Price Decision Framework

Every strike price is a trade-off between three factors:

1. Premium Income (higher strike = more premium)
2. Assignment Probability (higher strike = more likely to be assigned)
3. Your Comfort Level (would you be happy at this price?)

For Cash-Secured Puts: Where Would You Buy?

The fundamental question: At what price would you happily own this stock?

The Golden Rule

Only sell puts at strikes where you'd be excited to own the stock. Never sell puts just for premium.

Strike Selection Strategies

Conservative (5-10% Below Current Price)

• Current Price: $100
• Strike: $90-$95
• Delta: 0.15-0.20
• Premium: Lower (~1-1.5%)
• Assignment Risk: Low (15-20%)

Use when: You're cautious about the stock or market conditions are uncertain.

Moderate (2-5% Below Current Price)

• Current Price: $100
• Strike: $95-$98
• Delta: 0.25-0.35
• Premium: Medium (~1.5-2.5%)
• Assignment Risk: Moderate (25-35%)

Use when: You genuinely want the stock and believe current levels are fair.

Aggressive (Near Current Price)

• Current Price: $100
• Strike: $98-$100
• Delta: 0.40-0.50
• Premium: Higher (~2.5-4%)
• Assignment Risk: High (40-50%)

Use when: You really want to own the stock and are nearly ready to buy anyway.

For Covered Calls: Where Would You Sell?

The question: At what price would you be happy to sell your shares?

Strike Selection Strategies

Conservative (10-15% Above Current)

• Current Price: $100
• Strike: $110-$115
• Delta: 0.15-0.25
• Premium: Lower (~1%)
• Call-Away Risk: Low

Use when: You love the stock long-term and only want income, not to sell.

Moderate (5-10% Above Current)

• Current Price: $100
• Strike: $105-$110
• Delta: 0.30-0.40
• Premium: Medium (~1.5-2%)
• Call-Away Risk: Moderate

Use when: You'd be content selling at the strike but don't need to.

Aggressive (Near or At Current Price)

• Current Price: $100
• Strike: $100-$102
• Delta: 0.45-0.55
• Premium: Higher (~2.5-3.5%)
• Call-Away Risk: High

Use when: You're ready to sell and just want maximum premium while waiting.

Key Factors That Should Influence Your Strike

1. Technical Support/Resistance Levels

Align strikes with technical levels:

• Puts: Sell at technical support (where stock tends to bounce)
• Calls: Sell at resistance (where stock tends to stall)

This increases your probability of success.

2. Your Cost Basis

For Covered Calls:

• Don't sell below your cost basis (unless harvesting losses)
• Consider your desired profit first
• Factor in dividends received

Example: Bought at $95, now at $100

• Don't sell $90 call (you'd lose money)
• $105-$110 call lets you profit + collect premium

3. Upcoming Catalysts

Avoid aggressive strikes before:

• Earnings announcements
• FDA approvals
• Product launches
• Major economic data

Volatility spikes can turn safe strikes dangerous quickly.

4. Volatility Environment

High Volatility (IV > 50th percentile):

• Can use slightly lower Delta strikes
• Premiums are elevated across the board
• Wider strikes still pay well

Low Volatility (IV < 30th percentile):

• May need higher Delta for decent premium
• Or wait for volatility to increase
• Consider skipping the trade entirely

5. Portfolio Concentration

If this is your only position:

• Can be more aggressive
• Higher Delta acceptable

If you have multiple positions:

• Be more conservative per position
• Diversify strike selections
• Lower average Delta across portfolio

Common Strike Selection Mistakes

❌ Chasing Premium Don't sell the 0.50 Delta put just because it pays well. You'll get assigned constantly.

❌ Being Too Conservative A 0.05 Delta put isn't worth the commission and effort. The premium is too small.

❌ Ignoring Your Own Conviction If you don't really want the stock at $80, don't sell the $80 put - even if it seems safe.

❌ One-Size-Fits-All Different stocks warrant different approaches. Blue chips → conservative. High growth → very conservative.

❌ Forgetting to Adjust Your $95 put that was 0.25 Delta is now 0.45 Delta after a drop. Don't ignore it.

Real-World Example: Microsoft (MSFT)

Current Price: $400 Your Goal: Generate income, willing to own at the right price

Scenario 1: Conservative Approach

• Strike: $370 (7.5% below current)
• Delta: 0.18
• Premium: $5.50 ($550)
• Thought: "Safe, but is $550 worth tying up $37,000?"

Scenario 2: Moderate Approach

• Strike: $390 (2.5% below current)
• Delta: 0.28
• Premium: $10.00 ($1,000)
• Thought: "Good premium, would happily own MSFT at $390"

Scenario 3: Aggressive Approach

• Strike: $395 (1.25% below current)
• Delta: 0.42
• Premium: $15.00 ($1,500)
• Thought: "Great premium, but 42% chance of assignment... do I want to tie up $39,500 now?"

Most traders choose Scenario 2: Balanced risk/reward, strike you'd be happy with, decent premium.

The PutHouse Strike Selection Algorithm

There are dozens of factors considered simultaneously:

Technical Analysis:

• Support/resistance levels
• Moving averages
• Trend strength and momentum

Options Analysis:

• IV percentile and rank
• Premium/strike ratio
• Historical Delta performance

Your Preferences:

• Risk tolerance setting
• Stocks you want to own

The result: Optimal strike selection without the manual analysis.

See how it works →

Quick Strike Selection Checklist

Before selling any option, verify:

✅ Would I be happy owning/selling at this strike?
✅ Is the Delta appropriate for my risk tolerance (0.20-0.35)?
✅ Is the premium worth it (at least 1% for 30 days)?
✅ Are there upcoming catalysts I should avoid?
✅ Does this strike align with technical levels?
✅ Am I comfortable with the capital allocation?

If you can't check all boxes, pick a different strike or skip the trade.

Strike Selection Considerations

Smaller Accounts:

• Focus on lower-priced, liquid stocks
• Consider 0.25-0.30 Delta for balancing premium and risk
• Start with fewer positions to learn

Larger Accounts:

• More flexibility in stock selection
• Can spread risk across multiple positions
• May target 0.15-0.25 Delta for more conservative approach

Note: Account size recommendations are general guidelines only. Your appropriate position sizing depends on your risk tolerance, experience level, and financial situation. Never risk more than you can afford to lose.

When to Adjust Your Strikes

Roll to Lower Strike (Puts):

• Stock dropped and you don't want assignment
• Original put now 0.50+ Delta
• Can collect additional premium

Roll to Higher Strike (Calls):

• Stock rising toward your strike
• Want to keep the shares
• Extend timeframe and strike

Advanced: The Strike Price Matrix

Create a decision matrix for your favorite stocks:

Pre-plan your strikes so emotions don't drive decisions in the moment.

Start Selecting Better Strikes

Strike price selection is an art and a science. The right strike:

• Matches your conviction level
• Provides adequate premium
• Has appropriate probability of success
• Aligns with your overall strategy

Master this, and you'll dramatically improve your options trading results.

Learn more strategies: Cash-Secured Puts Guide