Options Selection¶
This page explains how the system chooses which option contract to trade after a stock or ETF has already qualified. That matters because a good stock idea can still become a bad trade if the contract is too illiquid, too expensive, or too short-dated.
If you are new to options:
- Delta measures how much the option tends to move when the stock moves, and it is also used as a rough proxy for how likely the option is to finish in the money.
- DTE means Days to Expiration.
- Open interest (OI) is the number of open contracts.
- Bid/ask spread is the gap between what buyers are offering and sellers are asking.
See the Glossary for the fuller definitions.
Delta Targets by Plan¶
Different plans use different contracts because they are solving different problems. Short-dated intraday trades need leverage without too much time value. Multi-day swing trades need contracts that behave more like the stock and decay more slowly.
| Plan | Delta | DTE | Why |
|---|---|---|---|
| H | 0.43 | 3-5 days | Balance of leverage and time decay for intraday |
| M | 0.80 | 30-120 days | Deep ITM, minimal extrinsic, swing-friendly |
| C | 0.43 | 3-5 days | Same as Plan H, puts instead of calls |
| Alpha | 0.30 | 30-120 days | Cheap, gamma-rich, max diversification across signals |
Extrinsic value is the "time premium" in an option beyond its immediate intrinsic value. Lower extrinsic is usually better when the plan wants the contract to track the stock more directly.
Plan M Liquidity Screen¶
Plan M uses larger, longer-held positions, so contract quality matters a lot. The goal is to avoid getting trapped in wide spreads or thin open interest.
- Monthly contracts at least 30 DTE (go further out for liquidity)
- 200+ open interest at chosen strike AND all the way down
- 10% max bid/ask spread — (Ask - Bid) / Ask < 10%
- 30% absolute max extrinsic — goal is 20% or less
- Target 80 delta, adjust strike up/down to find liquidity
Plan Alpha Options¶
Plan Alpha wants cheaper upside exposure across multiple names during crashes, so it accepts lower delta than Plan M.
- Find expirations with 30-120 DTE
- Prioritize monthly (3rd Friday, day 15-21)
- Find all calls with delta in [0.20, 0.40]
- Sort by: closest to 0.30 delta, tightest spread, highest OI
- Spread must be <= 15%, OI >= 5x estimated volume
Strike Walking¶
Sometimes the "ideal" strike on paper is not actually tradable. Strike walking is the practical fallback.
When the target strike doesn't have liquidity:
- Check one strike closer to ATM
- Check one strike further OTM
- If neither passes liquidity, try next expiration date
- If no expiration works, skip the trade
ATM means at-the-money, or near the current stock price. OTM means out-of-the-money, farther away from the current price.
DTE and Delta are Hard Blocks
No valid contract = alert + skip. Never force a trade into an illiquid contract.