Which option do I buy?!?

There's no single secret formula to selecting the right option, but our top traders are here to help guide you along the decision-making process. [Schaeffer's Logo]( Dear Trader, Trading options carries with it a few extra layers of complexity relative to buying shares -- and primarily because, at the outset of the investment, the speculator must select both a strike price and expiration date for option. And, as anyone who's "dabbled" in options can tell you, picking the right strike price and time frame are both crucial to maximizing your profit potential. To help determine what kind of considerations go into this decision-making process, here are some thoughts on the topic from two of [our seasoned Schaeffer's trading pros]( -- Senior Options Strategist Tony Venosa, CMT, and Senior Trading Analyst Bryan Sapp. Describe the "ideal" option to purchase. Venosa: It will depend mostly on the individual placing the trade, and the various factors to consider, which may not necessarily be considered "ideal" from one person to the next. Four of those factors are: time frame, outlook, risk tolerance, and volatility assumptions. As far as time frame, if I think stock XYZ, currently at $50, can move $2 in the next five days, it isn't necessary to buy a three-month option. Similarly, if I think the same stock could move $10 in two months, I wouldn't buy a weekly option with a 10-day expiration period. So, a trader's expected time frame for the underlying stock's move is essential to choosing the right expiration. Risk tolerance will also play a role in deciding the ideal option to purchase. Assuming I allocate the same amount of capital, playing a deep in-the-money option where the option's value moves nearly in lock-step with the shares could be less of a risk, versus playing an out-of-the money option where a big move may be needed just to break even. This concept is referred to as an option's delta, which is a measure of the sensitivity to the shares' price. If an option's delta is 90%, this means the option should move $0.90 for every $1 move in the shares. If an option's delta is 30%, this means the option's value will change $0.30 for every $1 move in the shares, so it's obviously less sensitive than the higher-delta option. As far as volatility assumptions, if I assume a stock will be more volatile than what the options market is pricing, it makes sense to purchase options. But the options market can also over-estimate its outlook on volatility, making the options a less-than-ideal purchase. Expand on the concept of "risk tolerance" when it comes to choosing the right option(s). Sapp: Risk is foremost when it comes to options trading. Given that options are so highly leveraged, a small move in the underlying can turn into a big loss quickly. As a result, I always choose the option that allows the most upside, but will also give me staying power in the trade. By "staying power," I mean it allows me to sit tight on a minor move against me. I generally won't take a trade unless the potential upside is at least a multiple of three times the theoretical risk. Assuming you have close to a 50% win rate, and follow your management rules, this will lead to profitable trading over time. [Learn More]( Are there any hard-and-fast "always" and "never" situations when it comes to picking the right option(s)? Sapp: The only "always" I follow in trading is to always buy "cheap" options and sell "expensive" ones. This isn't always "correct," obviously, as expensive options can sometimes deliver outsized profits, but it's a general rule that we follow at Schaeffer's. It generally works out for the best. What tools or indicators do you use to choose options? Venosa I look at different periods of historical volatilities to get a general sense as to whether the current implied volatility (IV) is being priced relatively high or low, such as our Schaeffer's Volatility Scorecard (SVS) metric. I also like to look at IV in the context of its own annual range, which could further determine whether options are cheap or expensive, such as with our Schaeffer's Volatility Index (SVI). And we look at data that shows the various deltas and leverage ratios for the different strike prices and expirations for the stock in question. Sapp: My favorite indicators are SVI, SVS, 10-day put/call ratios, and potential catalysts, such as conferences and macro data. With a catalyst in place, you give yourself the greatest potential for the underlying asset to move in your favor in a short period of time. But obviously, even with a catalyst, you don't want to overpay for the options. This is where historical option pricing data and historical price moves are key to determining what's actually cheap and what isn't. [Now that you're in an option-buying mood...]( Are you ready to start seeking out your own buying opportunities on calls and puts? Schaeffer's Weekend Trader Alert issues a new trade every week, based on our proprietary Expectational Analysis® methodology. This approach targets stocks that are poised for big breakouts -- but with low-priced options. Every Sunday at 7 p.m. ET, you'll receive a new options recommendation from our expert team of traders. Each pick will be accompanied by an easy-to-follow commentary where we'll explain exactly why we think the stock is poised for a major move over the coming months. Along with a carefully selected strike price and expiration date, we'll include all the key stats you need to know on implied volatility and options pricing, too. And you'll never have to worry about the details, because we provide everything you need to manage the trade, including a target profit and time-stop date. You're never left wondering what to do -- we'll guide you every step of the way. As a special "thank you" for choosing to [continue your options journey with Schaeffer's]( we're offering a special deal on Weekend Trader Alert for today only. You can take advantage of our powerful full-service recommendations at a serious discount to our usual prices! Typically, we price Weekend Trader Alert at $149 per month, which takes into account the volume of trades and the ambitious target profits of each recommendation. But through this exclusive VIP offer, you can claim a full month of these exciting trades for just $10! I'm positive that once you see the power of options, you'll be hooked... [So act now to claim an average of 4 of our subscriber-favorite trades for just $10!]( [Act Now]( But like I said, time is running out to claim your place as a Weekend Trader Alert member, so don't delay! [Click here to secure your spot]( and get ready to receive your first trade this Sunday at 7 p.m. ET! All my best, Bernie Schaeffer Chairman & CEO Schaeffer's Investment Research service@sir-inc.com []( 1-800-448-2080 1-513-589-3800 International P.S. Option selection can make or break your trade -- and my team are the experts! [Capitalize on our experience today with this limited offer.]( 5151 Pfeiffer Rd Cincinnati, OH 45242 If you didn't create an account using this email address, please ignore this email or [unsubscribe](. To ensure delivery of this email to your inbox and to enable images to load in future mailings, please add enews@schaeffer.com to your e-mail address book or safe senders list. Although there is significant profit potential associated with buying options, there is also the risk of losing one's entire investment in any individual trade. In any option buying approach, it is expected that losing trades will be more numerous than winning trades. The goal is for the average gain to be significantly greater than the average loss so that the bottom line is profitable. Prior to purchase, ensure that you have a broker that allows the trading of options and that you are approved to trade options.