Now I've been learning about things like theta, verticals, and weird things like back spreads. Here's my question: How do you decide what to do? Like, do you just say, I think price is going to be between here and here on this day, so therefore I'm going to execute such this strategy? Or like, I think price will be beneath such and such level, or maybe at this level, so I'm going to do this?
not necessarily price but vol and anything else related. and probably a bit more rigorous than 'I think'
"Vol" = volatility Some options traders look to sell options on high volatility & buy options on low volatility. Sell expensive & buy cheap.
Your underlying price outlook dictates how much delta you'll want to maintain. Your realized vol outlook vs. current implied is how you'll want to plan your vega exposure. Your personal worst-case-scenario tolerance is how you'll want to structure the spreads.
Depends on a lot of factors. How much exposure (risk) you are willing to take. IV as 2rosy pointed out. How much confidence you have in your outlook...many factors. For example, if I find out that a certain company is about to report blowout earnings and I'm expecting a big move in price, I'll buy further OTM calls and a lot more of them vs. another strategy which won't give me that much leverage for such a move. If I stock I would not mind holding has attractive puts, I might sell puts vs. buying a call spread. If IV is high, I'll look to ratio spreads whereas if it was low, I might consider buying a call.
Trading options is basically trading greeks. Whatever you own specifically doesn't matter - puts calls spreads straddles strangles whatever, they are all the same. They all consolidate into portfolio greeks which is your exposure and should be monitored dynamically because they change with time.