Before entering any position, there are four factors we consider: liquidity, implied volatility, stock price, and strategy.
Liquidity, arguably the most important factor, is measured by bid ask spreads, open interest, and volume.
Implied Volatility and Implied Volatility Rank are used to determine option richness. An IV Rank above 50 generally denotes that options are trading expensive.
Stock price is used to form a directional bias and also provide an indication of the buying power effect needed to place a trade.
Finally, we consider which strategy to use. Different strategies provide diversification and allow us to trade in all market environments.