Options 06 · Options
Choosing the Right Contract
You think it's going up. Which call do you buy?
This is the question the whole track has been building toward, and the one most beginners answer by price alone. Direction is roughly ten per cent of the decision. What follows is the other ninety.
1. Direction, with a level
'I think it goes up' is not a thesis. Everything in the Foundations track exists to turn that into something specific: a level it should hold, a level it should break, a place where you would be proven wrong. Without an invalidation point you cannot size the position, and you cannot decide how long you need.
2. Expiration — how much time does the thesis need?
Ask how long your setup should take to work, then buy meaningfully more time than that. Being right on the second attempt is common; being right after your contract expired pays nothing.
0DTE — same day
Expires today. Enormous gamma, brutal theta, no room for being early. This is not a beginner instrument regardless of how it is marketed.
Weeklies — 1 to 7 days
Cheap and fast-decaying. Only viable when you have a specific catalyst on a specific day.
2 to 4 weeks
The workable range for most chart-based setups. Enough time to be early by a couple of days without being destroyed.
30 to 60+ days
Slower decay, more expensive, far more forgiving. The right choice when the thesis is a swing rather than a trigger.
LEAPS — a year or more
Long-term positions that behave much more like owning stock. Minimal daily decay, large capital outlay.
3. Strike — where on the chain
In the money
- Higher delta, tracks the stock closely
- Mostly intrinsic value, so less decay risk
- Expensive — fewer contracts per dollar of risk
- Best when conviction is high and timing is uncertain
At the money
- Delta around 0.50 — a balanced starting point
- Maximum time value, so maximum decay
- Most liquid strikes on the board
- The sensible default while you are learning
Out of the money
- Cheap, low delta, all extrinsic value
- Needs a large move just to break even
- Highest probability of total loss
- Only with a specific catalyst and small size
4. Delta — sanity-check the odds
Once you have a candidate, read its delta as a probability. If it says 0.15, ask whether you genuinely believe this is better than a one-in-seven shot. If you do, that is a real reason to take it. If you have not thought about it in those terms at all, the delta column has just told you something you needed to know.
- 0.60–0.80 — behaves like a leveraged stock position. Higher cost, higher probability.
- 0.40–0.60 — balanced. Where most learning trades should sit.
- 0.20–0.40 — speculative but reasonable with a catalyst and small size.
- Below 0.20 — a lottery ticket. Size it like one, or skip it.
5. Volatility — is this contract expensive?
Check whether implied volatility is elevated relative to the stock's own normal range, and whether there is an event before expiration that will collapse it. If both are true, you are buying the most expensive version of this contract and holding it through the moment it reprices downward.
6. Liquidity — can you get out?
Open interest in the thousands, volume in the hundreds, and a bid/ask spread that is a few percent of the contract's price rather than most of it. This is a hard filter, not a preference — the exit matters more than the entry, and an illiquid contract takes the exit away at precisely the moment you want it.
7. Size
The next module, in full. The short version: your maximum loss on a bought option is the entire premium, so the premium is the risk. Size on that number, not on some notional stop below it.
Put it together
The assistant below runs the same four decisions in order and shows you the shape of contract they point at — the expiration range, the delta band, where on the chain to look. It has no idea what you are trading and it is not picking anything for you. It is the framework, made clickable.
Guided
Contract selection assistant
Four questions, and it shows you the shape of contract that fits — the expiration range, the delta band, where on the chain to look. It teaches the framework; you do the picking.
- Instrument
- Expiration
- Delta band
- Where on the chain
- Bid/ask tight enough to cross twice
- Open interest deep enough to exit into
- Volume showing a live market today
A teaching framework, not a recommendation. It has no idea what you are trading, what it costs, or whether the trade is any good — it describes the kind of contract that usually fits the answers you gave, so you know what to look for on the chain.
The check, before you click buy
Checklist
The 8-question options check
If you cannot answer all eight, you do not have a trade yet. You have an opinion and an order ticket.
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In one sentence, with a level attached. 'It looks strong' is not one.
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The price at which the thesis is wrong. Decided before entry, not during the trade.
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For a bought option, the full premium. Say the dollar figure out loud.
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Then buy more than that. Being early is normal; being expired is final.
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Relative to this stock's own normal — and is there an event before expiration that will crush it?
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Open interest, volume, and a spread you can afford to cross twice.
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Read it as odds. Are those odds ones you would deliberately take?
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Something that should make the move happen inside your window, rather than eventually.
Any blank is a reason to wait. The contract will still be there tomorrow, and so will your money.
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