A trader speculate that a momentum stock can go higher 10% - 20% in the next three months based on the history of it's fluctuations. It can go down also 5% from the current price in the next few weeks before it can hit the high.

The Current price of the stock is 200. The speculation is that it can reach 220 in three months. The trader wants to choose a strike price to buy CALL. Because since the trader speculate that it can go down 10% before it can go higher, should he choose a strike price of 190?

Please consider these situations too. The trader can wait until the price drops to 190 or buy a PUT to make a profit before buying call. Though those options are there, the trader wants to save his time by not waiting for the price to drop and focus on the future price of 220.

  • 1
    "...should he choose a strike price of 190?" A 190 what? A put? A call? What are you trying to achieve? Make money on the drop to $190 or make money on a rise to $220, or both? Commented Jan 1, 2020 at 16:43
  • I missed that important point, and added now buy CALL. Commented Jan 1, 2020 at 16:48
  • The higher the strike price you choose above the current price, the cheaper the option will be, but the less profit you can earn (and the more likely the option will expire out of the money). You have to do the math based on the pricing of options.
    – Daniel
    Commented Jan 1, 2020 at 16:56

1 Answer 1


The short answer is that you want to buy a put just before the stock drops and you want to buy a call just before the stock rises (a lot easier said than done).

If you want to try to achieve both then you look at straddles and strangles but for a stock trading at $200 and with a time frame of 3 months, they're going to be costly, even very expensive if IV is high, and they'll require a lot of move in either direction unless that share price movement occurs very soon after you take the position.

A vertical spread or an iron condor would reduce the cost/risk but again, you have too many 'what ifs' to satisfy in your set up.

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