Effective Options SELLING Strategy. By Gregory Mannarino
Effective Options SELLING Strategy.
Traders and investors want to buy options as hedges and protection, so there is always demand for them.
Selling an option is simple, you SELL TO OPEN. The issue I think people have is what to sell? This is simple. Selling a put is a bullish position, so you want to choose stocks which are in an uptrend, or are bullish, moreover, you want to sell a WAY OUT OF THE MONEY put which expires say in a month, up to four months at most.
For example JPM is currently trading at $144 a share, you could sell a put with an expiration say in about a month with an strike price of say $115. There are options calculators- all brokerages have them, which will tell you the probability of say JPM cratering to $115 in a month- here the probability is less than 1%
You are NOT LOCKED into a trade in which you sell a put. You can get out of the trade at anytime by using BUY TO CLOSE.
Selling puts is an easy and a profitable way to play the market.
Here is a good workable strategy for selling puts.
First OWN some of the stock in the company you want to sell puts on. These should be dividend paying companies, large cap.
The dividend will cover your trading fees and then some, so you trade for free, actually you get PAID TO DO IT.
When you sell an option, a put in this case, you get a credit to your account and again the dividend of the company stock you own WAY MORE than covers the cost of trading fees.
You choose to sell the puts on companies in uptrends, WAY OUT OF THE MONEY. Every day you hold the put you sold time decay works in your favor, and the closer you get to expiration, the faster you make money. If you get nervous that the option is getting too close to the strike price, you BUY TO CLOSE.
Remember to use a probability calculator and get the probability better than 90% in your favor. It gets even better! If you hold the position thru expiration YOU DO NOT NEED TO CLOSE OUT OR COVER THE POSITION AS LONG AS THE STRIKE PRICE WAS NOT HIT.. The person who bought the put will let it expire worthless, you keep the entire premium, and therefore no fee to close the trade!
Selling puts like this is a VERY nice income generator.
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