Choosing the right strike price for your covered call is one of the most important decisions you'll make as an options seller. The strike you select directly impacts your potential return, probability of assignment, and overall strategy success.

The 3 Main Goals When Selecting Strike Prices

Before choosing a strike, identify your primary goal:

1. Maximize Premium Income

  • Choose strikes closer to the money (ATM)
  • Higher delta (0.40-0.50)
  • More premium but higher chance of assignment

    • 2. Protect Your Shares

  • Choose strikes further out of the money (OTM)
  • Lower delta (0.15-0.25)
  • Less premium but keep shares more often

    • 3. Balance Both

  • Choose strikes slightly OTM
  • Moderate delta (0.25-0.35)
  • Good premium with reasonable protection

    • Step-by-Step Strike Selection Process

    Step 1: Determine Your Breakeven

    Your breakeven = Stock purchase price - premium received. Choose a strike that keeps you profitable even if assigned.

    Step 2: Check Technical Levels

    Look at key resistance levels on the chart. Selling at or above resistance can reduce assignment probability.

    Step 3: Consider Earnings and Events

    Avoid selling calls through earnings unless you're okay being called away. IV is higher around events, but so is risk.

    Step 4: Evaluate Delta

  • 0.15-0.20 delta: ~80-85% chance of keeping shares
  • 0.25-0.30 delta: ~70-75% chance of keeping shares
  • 0.35-0.40 delta: ~60-65% chance of keeping shares
  • 0.45-0.50 delta: ~50-55% chance of keeping shares

    • Step 5: Calculate Annualized Return

    Compare strikes by annualizing the return: (Premium / Stock Price) × (365 / Days to Expiration) × 100

    Common Strike Selection Mistakes

  • Chasing premium - Don't sell strikes too close just for more premium
  • Ignoring IV - High IV means you can sell further OTM for same premium
  • Not checking earnings - IV crush can hurt if you buy back post-earnings
  • Using round numbers only - Sometimes the best strike is $2.50 increments

    • Strike Selection by Market Outlook

    Bullish: Sell slightly OTM (1-2 strikes above current price) Neutral: Sell ATM or slightly OTM Slightly Bearish: Sell deeper OTM for protection while still collecting premium

    Use OptionsPilot for Strike Selection

    Our AI analyzes your stock, goals, and market conditions to recommend optimal strikes. Try the free calculator to see personalized recommendations.