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Strike Prices
1. In-the-Money (ITM): The strike price is above the current stock price. These options are more expensive but have a higher probability of being profitable if the stock price continues to fall.
2. At-the-Money (ATM): The strike price is close to the current stock price. These options are moderately priced and offer a balanced risk-reward ratio.
3. Out-of-the-Money (OTM): The strike price is below the current stock price. These options are cheaper but require a significant drop in the stock price to become profitable12.
Expiration Dates
1. Short-Term: Options expiring within a few days or weeks. These are more volatile and can offer quick profits but come with higher risk.
2. Medium-Term: Options expiring in a few months. These provide a balance between risk and reward, giving the stock more time to move in your favor.
3. Long-Term: Options expiring in several months to years (LEAPS). These are less volatile and offer more time for the stock to move, but they are more expensive12.
Factors to Consider
1. Market Outlook: If you expect a quick drop in the stock price, short-term options might be suitable. For a gradual decline, medium to long-term options are better.
2. Volatility: Higher volatility increases the premium of options. Consider this when choosing your strike price and expiration date.
3. Risk Tolerance: ITM options are safer but more expensive, while OTM options are riskier but cheaper12.
Would you like to dive deeper into any specific aspect or have any other questions about options trading?
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