Top 8 Reasons Why Selling Option Premium is the Best Way to Increase Income – and Why People are Scared to Start
Approximate Reading Time: 5 Minutes
- Selling option premium (primarily puts) has a high probability of profit
- You can consistently make small profits that, with time, compound into much larger gains
- Financial advisors almost always perform poorly, but people tolerate it because they believe they cannot do better when managing their own money plus they don’t want to assume personal responsibility for their investment decisions
- People also mistakenly believe that selling option premium are risky, yet it’s much less risky than most other types of investments (including buying & selling stocks)
Before we get into the reasons why selling option premium / options trading is the best way to increase your income, I want to reiterate that this is not a get-rich quick scheme.
You will not have trades that are huge winners, instead you’ll have a large number of trades that are small winners.
Some trades will lose money, but as long as you don’t get greedy by trading too many contracts, then you’ll be okay.
It’s important to think long-term. You CAN get rich slowly by trading options, or… you can try to get rich quick via other trading schemes and end up not getting rich at all.
Be patient and build good habits, or others (like Tim Sykes) will exploit your greed so that you have nothing.
In the stock market, there is no secret strategy that will achieve massive returns; anytime someone proclaims that they’re special, or that they’re a guru, you should run.
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 for the following reasons:
- Easy to get started – There are few barriers to entry. You can open an account in a few hours and begin learning a skill by dedicating just a few minutes a day. I recommend opening an account with OptionsHouse – they are reliable, easy to use & low-cost (recently OptionsHouse was acquired by E*Trade).
- Earn money from anywhere – A smartphone is the only required equipment. You can be location-independent and make money while traveling (as long as your phone is able to connect to the internet).
- No selling required – There’s no need to create a website, generate leads or sell a product. You don’t need to spend time marketing, blogging or building a team.
- High probability of profit – Options have a high probability of expiring worthless; the few trades that don’t expire worthless can usually be managed and closed for a profit, a small loss or rolled into the future.
- Liquidity – When buying or selling a house, the process takes months and there are numerous fees that must be paid. When selling options, the trade is executed instantly and the cost is minimal.
- Minimal time investment – You can spend just a few minutes a day monitoring your positions and placing trades.
- Many people find trading enjoyable – You can be your own boss and take control of your financial future. You will gain insight into human behavior and learn a skill that can be used for life. Also, it’s very easy to learn as long as you don’t overwhelm yourself with unnecessary information.
- It’s scalable and can be incredibly lucrative – Whether you have $2,000 or $10,000,000, you don’t need any employees nor do you have to change your methodology as your assets grow. Plus, with the power of compounding, you can become incredibly wealthy. Starting off with $20,000 and doubling your money for 10 years will leave you with ~7x more money than if you had made $300,000 a year during that span.
When trading options, 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 underlyings, and keep your number of contracts low, you shouldn’t suffer large losses.
Psychologically, losses are much more powerful than gains.
As a result, do yourself a favor, and avoid trading too many contracts.
Almost all of the horror stories that are associated with options trading can be attributed to trading too large. When deployed correctly, selling options is substantially better than buying and holding stocks.
Overall, the market “goes up” around 53% of the time, yet you can sell options that expire worthless ~85%-~90% of the time, with less risk & volatility when compared with buying stocks.
Selling Option Premium Conclusion
Selling options premium is the best way to increase your income. The biggest reason I love it is because it doesn’t require a substantial time investment; there is no need to create a product, pay for advertising or build an email list. Plus, the profit potential is substantially higher than most other strategies.
The financial services industry does not want you to manage your own money. They make their customers feel inferior yet financial advisors almost always performs poorly.
The next time a financial advisor gives you advice, you should ask them for their brokerage statement. Advisors leverage the brand equity of their employer for individual credibility, but the reality is that most of them are in worse financial shape than their clients.
When managing your own money and trading options, overconfidence is the biggest reason why people suffer major losses. Be careful not to trade too many contracts so that you can be successful & substantially increase your wealth.