How to pick a strike when selling puts
Strike selection for put sellers, step by step: the trade-off between premium and safety, why delta is the usual yardstick, and why size matters more than the strike.
The trade-off
A strike closer to the stock price pays more premium and gets assigned more often. A strike further below pays less and is breached less often. Every choice along that line is a mix of how often you lose and how much you collect, and the market prices that mix fairly most of the time.
So the strike is not where most of the edge comes from. The edge for a put seller is the variance risk premium: options usually price in more movement than actually shows up. A good strike lets you collect that premium at a risk you can carry.
Use delta, not a fixed distance
A strike 5% below the price means very different things on a calm index fund and on a leveraged ETF. Delta adjusts for volatility automatically, which is why many sellers pick by delta. A 25-delta put is a common middle ground; our replays used it as the default.
Pick the strike as a price you would be willing to own the shares at. If assignment at that strike would leave you with a position you would not want, the strike is wrong regardless of its delta. The guide on assignment covers what happens then.
What our replays say about choosing
Across 2016 to 2026, a 25-delta put on QQQ held 30 to 45 days earned about +0.5% a trade on collateral with a 94% win rate; GLD earned about +0.2% with a much smaller worst trade (minus 6.0% against minus 21.5% on QQQ). The underlying changed the result more than small changes in strike would.
We also tested trying to pick the moment instead of the strike. Selling only when puts looked expensive relative to recent movement did not help: that measure had a correlation of minus 0.06 with outcomes, and the richest quarter of entries had the lowest win rate, 79% against 86%.
Size beats strike
Losses for a put seller come as gaps, and a gap goes through a 25-delta strike and a 20-delta strike alike. In our replays the average losing trade was about twice the average winner, so how much of the account sits behind each put decides whether a bad month is survivable.
With puts on a spread instead of cash, the worst case is fixed by the width. On a monthly bootstrap of a put spread program, risking 10% of equity per trade showed no 20% drawdown in a year, while 20% showed one about 15% of the time.
Historical replays are not a forecast. Options can lose more than the premium collected. This is education, not a recommendation to trade anything.