Basics of selling option Premium?

[spinn]

Hey all,

I am doing well selling option premium but think I could be doing better. My method is good at finding periods of drifting before a trend reversal. Very often the options I sell expire worthless, which I am not sure if that is a good thing. I am more than happy to buy or sell whatever the underlying of the option is at expiration in most cases. So generally, do you sell options 2 weeks before expiration, two months, more? I am looking for what successful traders actually do in the real world, not just how to do it. How to do it is what most education focuses on, but not which option to sell and at what strike. I recently sold a couple Decembers at $2 that will expire worthless but am willing to bet that when I look back in a few months, the underlying will be a lot more in my favor so would not mind holding the position on most of these after expiration.

 

[ET180]

Very often the options I sell expire worthless, which I am not sure if that is a good thing.

You're not sure if it's a good idea to short something that goes to 0?

the underlying will be a lot more in my favor so would not mind holding the position on most of these after expiration.

Then sell ATM or slightly ITM. Or sell an ITM put ratio. Many ways to play it. But I don't recommend selling naked options unless you are fine holding if assigned. Otherwise, sell a wide spread.

 

[dorietrading]

IV is key, sell 2 week options when IV is low (or buy cheap options), sell longer dated when IV is high

 

[spinn]

You're not sure if it's a good idea to short something that goes to 0?



Then sell ATM or slightly ITM. Or sell an ITM put ratio. Many ways to play it. But I don't recommend selling naked options unless you are fine holding if assigned. Otherwise, sell a wide spread.

Of course selling short is good if it goes to 0 but then the trade is over. In many of these, if I ended up with the underlying I could have made 20 or 30 points instead of 2. I can hold but do prefer entering via options so I get the premium when I open.

 

[mervyn]

Of course selling short is good if it goes to 0 but then the trade is over. In many of these, if I ended up with the underlying I could have made 20 or 30 points instead of 2. I can hold but do prefer entering via options so I get the premium when I open.

That’s covered call for you, if you have money for multiple 100 shares of whatever. Size is the key.

 

[MarkBrown]

periods drifting = selling too cheap

the time to sell prem is into the spikes, when it feels the worst and you have no guts for it.

selling prem is not for normal logical people - but those that do it well are billionaires.

so ask yourself do you have blood or ice water in your veins?

 

[Handle123]

Yep, I am the one when some stock taking a dump and doing very wide Put credit spreads ITM/OTM, if it goes lower, will put up to 3 separate positions on.
I was born with lack of emotions, but I backtest 20 years which needs to make sense for positive outcomes.

I will add to positions when masses say trend has changed.

I find option trading to be far easier than scalping or day trading. Age catches up when older.

 

[TheDawn]

Hey all,

I am doing well selling option premium but think I could be doing better. My method is good at finding periods of drifting before a trend reversal. Very often the options I sell expire worthless, which I am not sure if that is a good thing. I am more than happy to buy or sell whatever the underlying of the option is at expiration in most cases. So generally, do you sell options 2 weeks before expiration, two months, more? I am looking for what successful traders actually do in the real world, not just how to do it. How to do it is what most education focuses on, but not which option to sell and at what strike. I recently sold a couple Decembers at $2 that will expire worthless but am willing to bet that when I look back in a few months, the underlying will be a lot more in my favor so would not mind holding the position on most of these after expiration.

The whole idea of selling options premium is to have the option expire worthless so you can earn the entire option premium. It's only when you don't want to run the risk of the option price becoming higher than the premium that you sold for that you buy back the option. So if you are able to have your option expire worthless then that's very good. You should be very happy about that.

 

[destriero]

Infinite gamma.

 

[TheDawn]

Of course selling short is good if it goes to 0 but then the trade is over. In many of these, if I ended up with the underlying I could have made 20 or 30 points instead of 2. I can hold but do prefer entering via options so I get the premium when I open.

ok if you are looking to profit from trading the underlying then you should just buy/short the underlying directly instead of through the assignment of short options. Unless you are not able to buy/short the underlying directly due to some special circumstances like the restrictions placed on meme stocks, acquiring or selling underlying through assignment is really an inefficient way of getting underlying from a price point of view. You are paying more/getting less for the underlying via assignment than if you just buy/short the underlying directly.

And yes trading in the underlying will always give you more profit because it's a totally different instrument from options.