Discover why selling option premium (combined with buying options) for a living is the best way to make income for traders.
Selling Option Premium Key Points
The 10 Reasons Why Selling Options is Best
Stop Chasing "Easy Money"
Before we get into the reasons why selling option premium and trading options is the best way to increase your income, I want to reiterate that this is not a get-rich quick scheme.
We typically strive to earn about 3% per month.
Also, whereas previously I felt that selling options and collecting premium was the best way to trade, I now believe that allocating that premium to call debit spreads is a better strategy because it allows you to capture large directional moves.
It's important to not trade too many contracts relative to your account size, that way if the market crashes then you won't be forced into a margin call.
The goal is to ensure that, if you have a losing trade, that you limit losses by being loss seeking.
Don't try to save every trade. If a trade isn't working out, then close it out for a small loss and move on.
Or, if you want to own the underlying security, then taking assignment of the security will allow you to dollar cost average ("DCA") into the security.
Don't make a big financial mistake, instead try to trade the best securities (large companies with strong brands) and don't be too aggressive with your trades.
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Learn to Sell Option Premium & Get Rich Slowly (But Surely)
What is option premium?
Option premium is the current market price of an option contract. It is the income received by the seller (writer) of an option contract to another party.
Out-of-the-money options' premiums consist solely of extrinsic value.
Selling option premium is the only strategy that I have come across where the odds are substantially in your favor; it’s the easiest way to rapidly increase your wealth.
Many people are selling option premium for a living
To make consistent money in the stock market, you must be the casino and not the gambler.
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Mistakes Options Traders Make
When trading options and selling option premium, people get in trouble when they become greedy and sell too many contracts.
They also run into trouble when they hold out hope that a losing position will become a winner instead of proactively managing the position.
As long as you trade highly liquid securities, and keep your number of contracts low, you shouldn’t suffer large losses (although you will need to proactively hedge your positions to eliminate tail risk).
Regarding trading psychology, losses are much more powerful than gains.
As a result, do yourself a favor, and avoid trading too big (too many contracts).
Almost all of the horror stories that are associated with options trading can be attributed to trading too large.
Overall, the market “goes up” around 53% of the time, yet you can sell options that expire worthless ~85% - ~90% of the time, and then take ownership of quality securities on pullbacks.
The primary reason options traders lose money is because they get greedy and trade too many contracts and fail to proactively hedge their portfolios.
Selling Option Premium Conclusion
Collecting and selling options premium is the best way to increase your income.
Many people are selling options and trading options for a living
It doesn’t require a substantial time investment, there is no need to create a product or pay for advertising.
Plus, the profit potential using selling option premium strategies is substantially higher than most other strategies.
When managing your own money and trading options, overconfidence is the biggest reason why people suffer major losses (and they fail to hedge their risk as well).
Be careful not to trade too many contracts when selling premium so that you can be successful & substantially increase your wealth.
I've found that focusing on buying debit spreads, selling option premium strategies (while proactively hedging) is the best strategy.
How to sell option premium?
Well, it's quite easy, you can enroll as a student at Beststockstrategy.com/memberships
For a detailed comparison of buying versus selling volatility around earnings events, check out my Earnings Edge Strategy Review.
Frequently Asked Questions (FAQs)
What is an option premium?
Option premium is the price an option holder paid to purchase, or received by selling the option contracts.
In other words, option premium is the current market price of an option contract, and the amount the seller receives when their option is sold in the market.
Can you sell option premium for a living?
Yes, you can collect option premium while using that to finance long debit spreads, which allow you to capture large directional movements.
Can I sell options for income?
Yes, selling options for income is a great trading strategy. I utilize a hybrid system where I sell puts on stocks that I want to own. I usually do not sell calls on the stocks that I own because it limits the upside potential of the stock.
Can I sell call options without owning stock?
Yes, you can. You'd want the stock to trade below the call strike at expiration so that you can keep the premium.
What is the best option selling strategy?
The best option selling strategy is to sell put options on large-capitalization stocks with strong brands that you want to own. You can sell puts that are ~10% - 15% below the current market price.
You can also sell put options and then use that premium to finance long debit spreads.
It's best to proactively hedge your portfolio to eliminate tail risk.