 There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet, or discuss your trading ideas with other reputable investors, click the link below and get connected with the trading mentor today, completely free of charge. Hey guys, this is Hydra from Xtrades and in this video we're going to be going over how to select a strike price and expiration date with options trading. So with this question, there's a lot of factors that come into play and these are the factors right, account size, how much you're actually willing to risk the dollar amount and are you aiming for a really high risk-reward ratio or a low risk-reward ratio and then the type of trade, is it a day trade or is it a swing or is it a leap or like a much longer outplay and you have to consider the stock volatility as well, right? So with the account size, if you have a big account then it's always better to be playing safe, right? You want to be playing at the money or in the money strikes, right? The other money is when you have smaller accounts and you're going for those bigger risk-reward ratios but if you have a big account size, your first goal is to protect your capital and the best way to do that is by playing it safer with at the money or in the money strike prices but if you're looking for those super high-risk high-reward trades and you're trying to grow like a small account size to like, for example, you're trying to grow $1,000 account to like a $20,000 account, you want to definitely be going for it out of the money strikes but again, this is based on your risk tolerance and what you're looking for in the market. So personally, I trade with the bigger account size so whenever I play options, I usually go at the money. I never go in the money, I feel like in the money is just really safe and at that point you could just buy shares instead of going for the option play but yeah, I typically go at the money or out of the money, one to two strikes out and I'll get into that more a little bit later and then the dollar of risk, so if you have a $1,000 account and you're only trying to risk 10% of your account then you can only risk $100 per contract, right? So in that case, you definitely want to go out of the money because your dollar risk is very low so you definitely have to go out of the money to risk that low of a dollar amount but if you have higher risk then definitely want to go out of the money or in the money and then risk reward, right? We covered this but out of the money gives you the best risk reward ratio but it's also very high risk, right? So there's a very good chance that this could expire worthless where these can expire with premium, right? So with out of the money you have to consider that there's data working against you, right? Your options are going to lose more premium more quickly if they're out of the money compared to out of the money or in the money so you have to consider data. Data is a very important factor, right? But when things do work out of the money contracts will have much bigger percent gains compared to out of the money or in the money. And then we'll also talk about type of trade so if it's like a day trade, swing or leap and then volatility of the actual stock itself. So for example if you have a $40 stock and it's trade, it trades around $1. It trades so if there's a $40 stock and it tends to trade or it has implied volatility of $1 that means plus or minus, plus or minus $1 every week. There's a chance that it'll either close at $41 or $39 or it could stay flat, right? That's the implied volatility. And if you're playing for a strike price with a $45 strike price then there's a very good chance this is not a great player, right? Because you have to consider the volatility of the stock. This is a slow moving stock. You don't want to be going out way too far out of the money, right? And same thing vice versa. So let's say this is a really high volatility stock and it has like a plus or minus 10 implied volatility so it can go from $30 to $50 then there's no point in going 42 strike price, right? Because the volatility of the stock is very high so you definitely want to go more out of the money. So yeah, you have to consider the stock's volatility as well and I'll just go over what in the money, at the money and out of the money mean, right? So if there's a $40, if there's a stock, let's call it XYZ and it's currently $40 in the money would be anywhere from like in the money would just mean it's less than $40, right? The strike price is less than $40 is in the money. At the money means a strike price of $40 and then out of the money means anything above $40 is out of the money. So it's a pretty simple concept so in the money again it's just anything. A strike price less than $40 so if you're buying a $35 call option then that's in the money. If you're buying a $40 call option that's at the money. If you're buying a $42 call that's out of the, wait I messed up, if you're buying a $40 call then that's at the money and if you're buying a $42 call that's out of the money. But yeah, that's what out of the money, out of the money, in the money mean. So pretty simple concept, it's just dependent on the stock price and where this strike price is. But yeah, that's strike price and cover data and now we're going to cover expiration date, right? So this is, I'm going to try to break it down as simple as possible. So for day trades I play weekly expirations. So if it's a Monday I'm going to be playing this Friday's expiration date. So that's how I play day trades for scopes. So these are usually trades that I buy and sell within the same day. So yeah, that's what a day trade is and usually for those I will always play the coming weeks expiration date. And for swing trades I typically go one to three months out and for leaps I go one year out. So leaps are not something that I typically do. All right, let's cover swings first. So swings are trades that are usually momentum based. So if there's a strong stock and it's flagging now then I want to buy and then I typically go one to three months out, right? So that's a good example for swing trade. And for these type of trades I usually go one to two strikes out of the money. And for day trades I usually go at the money or one out of the money and for leaps. I typically go, really depends, for leaps, I would say it's dependent because it really depends on how the stock trades and its actual volatility. So it's very dependent. But yeah, let's go over day trades in swings because that's what 90% of most people's trades are. So for day trades always go weekly expiration and then if a stock is trading at $41 then I'll always go at $41 or one out of the money, so $42, yeah, pretty simple there. And for swing trades I will always go one to three months out. One month means I'm more confident the move will happen quicker. Three months if the stock tends to trade more choppy here and it's more of a slow mover, right? So if it's a quick mover I'll go less time out and if it's a slow or fast mover I'll go less time out and if it's a slow mover I will go more time out. I typically go around, I almost always go two strikes out of the money so if a stock is trading at $40 and the strike prices are at $1 or the gap between each strike price is $1 and I'll go, so if a stock is trading at $40 then I'll play a $42 call, right? Same thing for put, I'll go $38 if I wanted to play the short side. But yeah, that's swing trading, I stay trading and for leaps I typically go one year out. So for leaps I actually don't do leaps too much. If I want to play something long term I usually just buy shares itself. I just find that easier. But if you want to do leaps then typically you want to go one year out and dependent on the stock price and how it trades then you would choose how far you want to go out of the money. Typically leaps are usually a high risk card reward place so if it works out it can be a huge gain, right? So typically you want to go out of the money since you're giving it a long time, right? So typically around $3 plus out of the money, three strikes out of the money. But yeah, that's pretty much how I choose strike prices and expiration dates. I hope this helped break things down for you guys. And yeah, thank you for listening and feel free to DM me if you guys have any questions. Thank you for watching. There's a reason why Xtrades is currently the fastest growing application on the market for sharing financial ideas. With over $2.5 million paid in the last two years to contributors, users are flocking to see what trades the top traders on the leaderboard are sharing in real time. If you're looking to grow your reputation as a trader on the internet or discuss your trading ideas with other reputable investors, click the link below and get connected with a trading mentor today completely free of charge.