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strategy for option trading

Strategy for Option Trading

Did you know that you can get paid to buy a stock at a reduced price while also getting paid for your time?

When people think of the “stock market,” they often think of buying stocks with the hopes of earning a profit. 

Unfortunately, buying stocks is not the best investment strategy or the best way to make money. 

Instead, David Jaffee of BestStockStrategy.com shows how selling options allows you to earn a consistent profit and better manage your risk. 

If you want to buy stocks, but you think they are oversold or overbought, selling options is likely a better strategy. 

Selling options is like turning yourself into a casino or insurance company where you sell insurance and collect option premium. 

Keep reading to learn the best strategy for option trading

How to Earn Money Selling Options Example

When Tesla was trading at about $900 and Amazon was trading at $3,700, you may have considered those stock prices to be too expensive. 

You were not willing to buy Tesla at $900 or Amazon at $3,700, but you were still interested in owning those stocks. 

Instead of paying too much for Tesla and Amazon stocks, you could agree to buy those positions at a significantly reduced price and earn money while waiting. 

When you sell option premium, it is possible to purchase desired stocks at a reduced price and collect money while you wait. 

In this example, you could have sold a put option with a strike price of $600 for Tesla and collected a few hundred dollars of premium. 

You could also have agreed to buy Amazon at $3,000 by selling a $3,000 put option and collected about $600 in premium. 

When Should You Sell Options?

Selling options is a great way to earn consistent income while managing your risk. 

If you perceive a stock to be oversold, you can sell a put option. 

If you believe that a stock is overbought, you can sell a call option. 

David Jaffee encourages his students to focus on market-leading stocks with high liquidity and sell options with a strike price about 10% - 20% below (or above when selling calls) the current market price. 

By selling options, traders can earn between 30% - 50% every year and win almost every trade

When you sell options, there is a very high probability of profit.

Buying options is similar to buying lottery tickets. A few people will win, but the more times you play, the more money you’re likely to lose.

Risk is usually overpriced, and the expected volatility is almost always more than the actual volatility. 

By selling options, you are able to sell overpriced expected volatility. By selling options, you have a very high probability of profit. 

How to Manage Risk When Selling Options

While you can earn consistent income selling options, there is a danger of becoming greedy and trading too large. 

A lot of people get used to winning almost all of their trades, so they end up selling too many contracts and they do not provide enough of a safety net in case their positions start going against them. 

When the market corrects and pulls back by 10% - 20%, they may run out of buying power and have to close their positions for a large loss. 

To manage risk when selling options, you must protect yourself against a large volatility expansion event or a large market downturn. 

As one of the best options trading coaches, David Jaffee recommends targeting about 3% returns per month instead of trading too large and taking too much risk. 

Use the Wheel Strategy to Manage Risk when Selling Option 

You can also run a wheel strategy and sell very far out-of-the-money put options, take assignment of the position, and then sell covered calls against it. With this strategy, you would sell an OTM put and get assigned, sell OTM calls until the position gets called away from you, then you would start the wheel again by selling an OTM put option.

The wheel strategy is a viable way to earn returns that may exceed the S&P 500 index. After taking assignment, you’d also be able to participate in the capital appreciation of the increase in the underlying stock price while also collecting option premium from selling the call option. 

If your position is called away, you earn the profit from reselling the stock at a higher price as well as the call option premium. If the position is not called away, you still keep the call option premium you collected and simply re-sell a call option at a future expiration.  

Learn the Best Strategy for Option Trading

Whether you are new to options trading or a seasoned pro, you can always improve your skills and learn something new. 

David Jaffee has taught more than 1,500 students how to sell option premium and win up to 98% of their trades. 

Stop paying too much for stocks, overpaying for volatility, and losing money while trading. 

Learn how to sell options with David Jaffee and win almost every trade while managing risk. 

Visit BestStockStrategy.com today and receive $400 in free options training materials.

About the Author David Jaffee

I (David Jaffee) help people become consistently profitable traders while minimizing risk. I graduated from an Ivy League University and worked at some of Wall Street's most successful investment banks. Subscribe to my YouTube channel for valuable videos - BestStockStrategy YouTube Channel​. Finally, if you're looking to Land a Finance Job, then I've put together the best step-by-step course at LandaFinanceJob.com. My personal website is DavidJaffee.com.

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