Hi Traders, I am fairly good at predicting 3-6 month market direction. I have recently been selling options premium with the ultimate goal being to purchase the underlying in a few months if the trade moves in my direction. My question is, suppose I sell an option 2 months out for $10, and in a month or so it costs $3 meaning I am up $7. Should I let the option run because it will most likely expire at $0 in another month? Or should I take the $7 for a $700 profit on a $1,000 trade? I have been taking profits on the options I sell for close to $0 as they near expiration but wonder if I am not shooting myself in the foot.
Confused about taking profits on an options sale
- Thread starter spinn
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For me, I generally close out sold options in the 80% - 90% range. In other words, that $10 option would be bought back at $1 or $2. The way I look at it is that I've made 80-90% of what I intended and why am I sitting around waiting for those last few bucks when the market can reverse hard and not only take what I've made - but turn it into a huge loser. You have to find the number that works for you. My theory with options is I want to get "most of the money most of the time" and move on. Same with spreads for me.
Look at just today on the SP. We closed ES at 3670 and were up over 3720 early looking like we'd fly today, then a huge reversal below 3650. With three hours left who knows what happens this afternoon. Take the profits when you can.
Look at just today on the SP. We closed ES at 3670 and were up over 3720 early looking like we'd fly today, then a huge reversal below 3650. With three hours left who knows what happens this afternoon. Take the profits when you can.
Just be happy if you consistently can make 20 to 30% per month on average... 
There are enough opportunities out there with options, so no need to hold the position till expiry.
Better use options spreads, IMO.
There are enough opportunities out there with options, so no need to hold the position till expiry.
Better use options spreads, IMO.
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If there's a new opportunity out there, use your capital on it to stay invested farther out. Otherwise, with no new opportunity, let your existing decay to $0.
Better not use options spreads, IMO.
Better not use options spreads, IMO.
Ok, but can you also give the reason why not to use options spreads? What's so bad with spreads?
"I have recently been selling options premium with the ultimate goal being to purchase the underlying if the trade moves in my direction."
If I'm making money selling a put and wheeling my stock off with a call, why would I want to spend money to buy a put to make a spread?
And then you have to have the kind of spread that makes you money instead of loses you money.
Which underlying do you use? One you would like to own or one that is a top pick? If you go by tastytrade's top picks there's maybe only a dozen top picks. For wheeling, I have very few top picks but they make me money.
If I'm making money selling a put and wheeling my stock off with a call, why would I want to spend money to buy a put to make a spread?
And then you have to have the kind of spread that makes you money instead of loses you money.
Which underlying do you use? One you would like to own or one that is a top pick? If you go by tastytrade's top picks there's maybe only a dozen top picks. For wheeling, I have very few top picks but they make me money.
I have no clue what you mean by "wheeling", as this terminus is IMO not used in trading, but maybe in gambling, I'm not sure.
Do you mean short straddle or short strangle ?
Or do you use all 3 combined: stock + put + call ?
What is the professional terminus of the construct you use? Just give a link to look up.
To each his own. And the most for me
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You're super expert spread trader with The Put Seller's Journal and you don't know what the wheel is?
https://beststockstrategy.com/wheel-strategy-options-trading-strategy-pros-and-cons/
https://beststockstrategy.com/wheel-strategy-options-trading-strategy-pros-and-cons/
That's right. Maybe I'll learn something new
Let's see...
Ok, I see. Indeed an interesting strategy.
Ok, I just learned something new.
Thx, man!
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I think it depends on the underlying. If the underlying is known to have a relatively "stable" PA and is not known to have high volatility and is not having any major market-moving events happening from now until the option's expiration, then I don't see the harm in just letting the option expire worthlessly instead of spending the commissions and foregoing part of the profit by closing the position. But then again unexpected volatility can happen at any time and it's the unexpectedness that rocks the boat the most and makes the option price go haywire so might as well close the position while you still can when it's already earned 70 to 80% of the time cuz by the time when the price goes crazy, it would be too late to close the position.