Prady Prakash

Module 5

Strikes & Expiry

Picking a strike is picking a probability

The fastest way to think about strike selection isn't "how far away should the strike be" — it's "what's my odds of being right." A 0.30 delta call is roughly a bet with a 30% chance of finishing in the money: cheaper, more leveraged, more likely to expire worthless. A 0.70 delta call already behaves a lot like owning the stock: pricier, safer, less explosive upside.

There's no universally "correct" delta. Lower deltas are cheaper lottery tickets; higher deltas are closer to just owning the stock with a discount. Your choice should match your conviction and how much you're willing to risk on being wrong.

Picking an expiry is a time-decay trade-off

More time costs more premium, but it also gives your thesis more room to play out. Less time is cheaper, but theta — time decay — accelerates as expiry approaches, working hard against you if you're long the option. A common beginner mistake is buying options that are too cheap because they're too close to expiry, then watching theta erode the position before the stock even has a chance to move.

Stock trading at $100, with 30% implied volatility. Pick a target probability and a time horizon — we'll find the strike that matches.

Target chance of finishing in the money30%
Days to expiry30d

Strike

$105.39

Distance from spot

+5.4%

Estimated price

$1.57

Delta

0.30

Putting strike and expiry together

Notice that the same target delta maps to a different strike depending on how much time you give it — more time means a wider range of strikes can still hit your target odds, which is why "30 delta" alone isn't a complete trade idea. You need both numbers: how confident you are, and how long you're willing to wait to find out if you're right.