Picking up the right strike price in options easy if you know about the options Greeks and other things that effects the price of the option.
If you are new trader and you need to understand how this works then I will try to explain you with an example below:
If you have selected the stock and you have assessed whether it will rally upwards or downwards.
Now how do you select the strike price?
I hope you know about the options chain. I will still try to explain in a short way if the stock is going up. You will have two options:
- Buying a Call option(CE)
- Selling a Put option(PE)
In the same way, if you think the stock will fall, you can either
- Buy a Put option (PE)
- Sell a Call option(CE)
Now, if you are clear on which side you are predicting the market, try to select the strike price near the LTP. You can either go with ATM or Slight ITM. If you are planning for OTM, most of the time, the value of the contract decreases due to time value.