How to Select Strike Price in Sensex Options Trading
How to select strike price in Sensex options?
The right strike price is chosen based on market direction, expected move, time to expiry, volatility, and your risk appetite. Align the strike with probability and strategy rather than premium size or emotional preference.
TL;DR
Pick Sensex strike price based on market view, probability, and risk.
ATM for balance, ITM for higher probability, OTM for aggressive high-reward strategies.
Why Strike Price Selection Is Important in Sensex Trading
Sensex options are less volatile than Bank Nifty but still sensitive to market swings. Choosing the correct strike price determines:
The premium you pay
Your risk exposure
The probability of profit
Your potential reward
Many traders focus solely on direction, but even if Sensex moves as expected, poor strike selection can result in losses.
Strike selection is the foundation of structured trading, not just a guess.
Understanding Strike Price in Sensex Options
Strike price is the predetermined price at which the option buyer can buy (call) or sell (put) the underlying index.
In-the-money (ITM) → Strike price is favorable relative to current index
At-the-money (ATM) → Strike is near current index level
Out-of-the-money (OTM) → Strike price is above (calls) or below (puts) current index
Each category has different probability, premium, and risk characteristics.
Strike Price Selection Based on Market Direction
Clear market view is the first step in selecting a strike price.
Bullish View – Selecting Calls
If you expect Sensex to rise:
ITM Call → Higher premium, higher probability, lower percentage return, safer
ATM Call → Balanced risk-reward, most liquid, reacts quickly
OTM Call → Low premium, high reward potential, but requires strong upward movement
Decision guide:
Mild bullish trend → ATM
Strong breakout expectation → Slightly OTM
Low-risk strategy → ITM
Bearish View – Selecting Puts
If you expect Sensex to fall:
ITM Put → Higher probability, safer
ATM Put → Balanced risk-reward
OTM Put → Aggressive play for sharp downward moves
Strike choice depends on intensity of bearish expectation and how quickly you expect the move.
Neutral View – Range-Bound Markets
If you expect Sensex to trade sideways:
Selling ATM options benefits from time decay
Spreads can be used around strong support and resistance
Avoid far OTM buying unless expecting a volatility spike
Sideways markets reward structure over directional guessing.
Strike Selection Based on Expiry
Time until expiry affects strike performance and risk.
Weekly Expiry
Quick moves matter
ATM strikes have highest liquidity
OTM can expire worthless if move is insufficient
Time decay is faster
Monthly Expiry
More time for expected move
ITM provides safer positioning
Suitable for swing strategies
Slower theta decay
Strike Price Selection Based on Volatility
Volatility directly influences premium and risk-reward.
High Volatility
Premiums expensive
OTM buying is risky
ITM strikes behave more stably
Spreads reduce risk
Low Volatility
Premiums cheaper
OTM buying can work if volatility is expected to rise
ATM strikes react to smaller moves
Always consider implied volatility trends before selecting strike.
Probability vs Reward
Every strike represents a trade-off between probability of success and potential payoff:
| Strike Type | Probability | Cost | Reward Potential | Risk Level |
|---|---|---|---|---|
| ITM | High | High | Moderate | Lower |
| ATM | Medium | Medium | Good | Balanced |
| OTM | Low | Low | High | High |
Many traders chase cheap OTM options, but probability is low without strong momentum.
Using Delta to Choose Sensex Strike Price
Delta provides a quantitative measure of probability and sensitivity:
Delta 0.50 → ATM
Delta 0.60–0.70 → Slightly ITM
Delta 0.30–0.40 → Slightly OTM
Delta below 0.20 → Far OTM
How to use delta:
Higher probability → Choose delta above 0.60
Balanced → Around 0.50
Aggressive → 0.25–0.35
Delta-based selection removes emotional bias from strike choice.
Using Support and Resistance for Strike Selection
Technical levels enhance strike accuracy:
Near strong support → ATM or slightly OTM calls if expecting bounce
Near strong resistance → ATM or slightly OTM puts if expecting reversal
Breakout levels → Slightly OTM in direction of breakout
Align strike with expected move, not just index price.
Strike Price Selection for Intraday vs Positional Trading
Intraday Trading
Prefer ATM for liquidity
Fast reaction to index moves
Tight stop-loss
Small targets, quick exits
Positional Trading
ITM for stability
Monthly expiry for swing strategies
Spread strategies to manage risk
Focus on larger moves
Strike selection should match holding period.
Risk Management in Sensex Strike Selection
Strike price defines maximum risk when buying options.
Allocate capital per trade
Avoid averaging losing OTM positions
Avoid using full capital on one expiry
Pre-define stop levels
Even the right strike can fail if risk management is ignored.
Common Mistakes in Sensex Strike Price Selection
Buying OTM due to low cost
Ignoring time decay in weekly options
Trading without clear direction
Overtrading during volatile sessions
Holding losing options hoping for reversal
Selecting strikes based on emotional bias
Ignoring volatility changes
Strike selection must be systematic, not random.
Advanced Strike Selection Strategies
Open Interest Analysis
High open interest levels can act as short-term support or resistance. Selecting strikes near these levels improves probability.
Breakeven Calculation
Calculate option premium
Estimate realistic move
Determine breakeven points
Avoid strikes where breakeven is unrealistic relative to expected volatility
Psychological Discipline
Sensex moves can trigger emotional reactions:
Fear → deep ITM
Greed → far OTM
Impatience → weekly expiry
Professional traders select strikes based on probability, structure, and discipline, not emotion.
Key Takeaways
Strike selection depends on direction, expiry, volatility, and risk appetite
ATM provides balanced risk and reward
ITM offers higher probability and stability
OTM offers higher reward but lower probability
Delta helps quantify probability and risk
Weekly expiry requires faster decision-making
Always integrate risk management into strike selection
Final Thoughts on How to Select Strike Price in Sensex
There is no universal “best strike.”
Right strike aligns with:
Market view
Expected move magnitude
Holding period
Volatility
Risk tolerance
Stop chasing cheap premiums. Focus on probability, structure, and risk control. Consistency in strike selection is what separates disciplined traders from impulsive ones in Sensex options.
