How to select strike price for options

I would like to know how does one select the correct strike price. For instane Spot is 500, and I believe the stock to go approx till 520 before the expiry, now there are different strike price available with a multiple of 5, so ideally which strike should be the choice? Thank You

Read the options theory for professionals and options strategies module on Varsity where you will learn how to choose the strike price for naked options and how to choose the strike prices for the various options strategies explained there.

For ex, in a short strangle strategy, you short 1 OTM call option and 1 OTM put option equidistant from the ATM strike and if the spot falls within this put and call strike range, then you make the entire premium amount on both the options. This strategy reaps max profits when the spot closes within you put and call strike range.

Please do read and learn before you make your first options trade.

Thanks. I have gone through this article

It talks about which strike price to chose. But apparently I didnt find the reasons as to why it say so. Could you please address the following as to why it happens?

  1. If we are buying options in the first half the series i,e first 15 days it mentions if we expect our target to be achieved in the next 4-5 days we should buy OTM usually 3-4 strikes away form the ATM, these tend to give a larger profit, But why ? what is the reason?

  2. Further it said, if we expect target to be achieved in 15 days, buy slightly OTM usually 1 strike away from the ATM, but why these slight otm gives more profit ?

I am not getting the logic behind this? Please if you could clear this concept

Thanks a lot

So these are the main pointers in the re-introduction of call and put options that you’ve posted.

  1. Option prices increase with an increase in volatility.
  2. Choose the option strike based on the period of the option series(1st half or 2nd half of expiry) and the timeframe during which you expect your target to be achieved.

and this is the table that came out of it:

And you are talking about the first 2 scenarios in the table which is explained in the graph below:

If you buy an option at the beginning of the expiry series and the underlying stock moves up 4% from 5000 to 5200 within the first 5 days itself, then OTM options move up the most(options higher than ATM strike). You can buy 2 or 3 strikes higher than ATM.

If you buy an option at the beginning of the expiry series and the underlying stock moves up 4% from 5000 to 5200 within 15 days, then ATM and slightly OTM options are highest. You can buy the ATM strike or 1 strike higher than ATM.