What’s the Best Expiration Date and Strike Price for Selling Options?
The goal for option sellers is for the option to expire worthless. However, the closer the strike price is to the current market price of a stock, the more premium is received for the option seller. When choosing a strike price, the option seller should try maximizing the premium received while also maximizing the probability of the strike price not being reached (so the option expires worthless). Strike prices with a lower delta have strike prices that are further away from the current price, have a higher chance of expiring worthless, but also offer less income. Strikes with a higher delta with closer strikes will collect more income but will have a lower chance of expiring worthless. Selecting a suitable strike price is dependent on the risk tolerance of the option seller:
POW – Probability of expiring worthless
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