How to Pick the Right Strike Price

The core tradeoff every covered call trader needs to understand

The Core Tradeoff

Every strike price decision comes down to one question:

More premium now vs. Higher chance of keeping shares

Lower Strike = More Premium

But you're more likely to sell your shares

Higher Strike = Keep Shares

But you collect less premium

See It With Real Numbers

NVDA at $140, selling calls expiring in 2 weeks:

Strike	Premium	% Return	Keep Probability
$145	$4.20	3.0%	~60%
$150	$2.50	1.8%	~75%
$155	$1.20	0.9%	~85%
$160	$0.50	0.4%	~92%

Notice how premium drops off quickly as you go higher, but your chances of keeping shares improve dramatically.

Use Delta as Your Guide

Delta tells you the approximate probability your shares will be called away. A delta of 0.30 means roughly a 30% chance.

Aggressive (0.30-0.40 delta)

~60-70% keep rate

Higher income, but expect to sell shares more often. Good if you're actively managing positions or don't mind buying back in.

Moderate (0.20-0.30 delta)

~70-80% keep rate

The sweet spot for most traders. Balanced income with reasonable chance of keeping shares.

Conservative (0.10-0.20 delta)

~80-90% keep rate

Lower income but rarely called away. Best for stocks you really don't want to sell.

Three Questions to Pick Your Strike

1

At what price would I happily sell this stock?

If NVDA at $160 feels like a great exit, use that strike. Don't fight assignment if you picked a good price.
2

How much upside do I think this stock has short-term?

If you think NVDA might run 15% in the next month, don't sell a call 5% above current price.
3

Is the premium worth locking up my shares?

A $0.30 premium on a $140 stock for a month isn't worth capping your upside. Set a minimum return threshold (many use 1% per month).

Common Strike Selection Methods

Fixed Delta Approach

Always sell at 0.25 delta (or your preferred level). Simple and consistent. Delta adjusts automatically with volatility.

Technical Resistance

Set strike at a resistance level the stock has bounced off before. If NVDA keeps failing at $155, sell the $155 call.

Percentage Above Current

Always sell 5-10% above current price. Simple but ignores volatility — works better for stable stocks.

Cost Basis Target

Sell at a strike above your cost basis to ensure profit on assignment. If you bought at $130, the $135 strike guarantees a win.

Common Strike Selection Mistakes

✗
Chasing maximum premium
That juicy ITM call pays great, but you'll almost certainly lose your shares. Only do this if you want to sell.
✗
Going too far OTM
A $0.10 premium isn't worth the paperwork. If the premium doesn't move the needle, skip it.
✗
Ignoring upcoming events
Earnings, product launches, and Fed meetings can blow past your strike. Check the calendar.
✗
Selling below cost basis
If you bought at $150 and the stock is at $140, selling a $145 call locks in a $5 loss if called. Wait for recovery or accept the loss.

The Math That Matters: Annualized Return

A 1% return in 2 weeks is much better than 2% in 6 weeks. Use annualized return to compare across expirations:

Annualized Return =

(Premium ÷ Stock Price) × (365 ÷ Days to Expiry)

$2.50 premium on $140 stock, 14 days: 46% annualized

$5.00 premium on $140 stock, 45 days: 29% annualized

Shorter expirations often have better annualized returns, but require more active management.

Quick Decision Framework

Bullish on stock? → Higher strike (0.15-0.20 delta)

Neutral on stock? → Middle strike (0.25-0.30 delta)

Want to exit? → Lower strike (0.35-0.45 delta)

High volatility? → Go further OTM for same premium

Earnings soon? → Wait or go very conservative

Let ThetaGo suggest strike prices for you

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