1. Use Delta as a Probability Proxy

• Delta (from options pricing models) estimates the probability that an option will be ITM at expiration.
• A delta of 0.30 (30%) or lower is a common threshold for selecting covered calls that are unlikely to be exercised.
• Example: If a stock is trading at $100, a $110 strike call with a 0.25 delta suggests only a 25% chance of being ITM at expiration.

2. Consider Standard Deviations (Expected Price Range)

• Use implied volatility (IV) and the expected move formula:

  ExpectedMove=StockPrice×IV×DTE365Expected Move = Stock Price \times IV \times \sqrt{\frac{DTE}{365}}ExpectedMove=StockPrice×IV×365DTE​​

  Where:

  • IV = implied volatility (from the options chain)
  • DTE = days to expiration

• Choosing a strike at least 1 standard deviation away (about 68% probability of staying out of the money) reduces the likelihood of assignment.

3. Historical Volatility & Support/Resistance Levels

• Identify key resistance levels where the stock has struggled to break through.
• If a strike price aligns with technical resistance, it’s less likely to be breached.
• Compare historical volatility to determine if the stock tends to make large moves.

4. Time to Expiration & Theta Decay

• Shorter expirations (e.g., 30 days or less) benefit from faster time decay (theta), making it easier to buy back the option before it goes ITM.
• Longer-term calls (60+ days) allow for more stock movement, increasing the risk of assignment.

5. Use Percent Distance from Current Price

• A general rule: Sell calls 5%-10% above the current price, depending on the stock’s volatility.
• Low volatility stocks (e.g., utilities) → Use 5%-7% OTM strikes.
• High volatility stocks (e.g., tech, growth) → Use 10%-15% OTM strikes.

Example Calculation

• Stock Price: $100
• IV: 25%
• DTE: 30 days
• 1 Standard Deviation Move: 100×0.25×30/365≈5.14100 \times 0.25 \times \sqrt{30/365} \approx 5.14100×0.25×30/365​≈5.14
• Safe Strike: $105 or higher
• Check Delta: If the $105 strike has a delta ≤ 0.30, it’s a solid candidate.

Final Strategy

• Pick a strike that:
  • Has delta ≤ 0.30
  • Is 1 standard deviation above the current price
  • Aligns with a resistance level
  • Offers a good risk-reward balance (premium vs. probability of exercise)