Hi Impatient Investors

Selling options is a nice impatient strategy, if done correctly, you can receive weekly payments called premiums from the sale of an option contract. Remember, buying options is the flip side of selling options. So for a bit, let’s revisit buying options. Buying options involve paying a premium whether it be for buying a call or buying a put.

There are two types that we will mention, selling a covered call or selling a cash secured put.

Selling Options Breakdown

Robinhood has a clean layout for options, not a recommendation, just an observation. So we will use Robinhood just to show how to sell options.

Selling Cash Secured Puts from Robinhood step by step. Annotations are in red. In this example from LYFT, if you sold the $10 put option you would need to set aside $1000 ($10*100 shares) until Oct 27 to receive $29 premium (step 2). To receive almost 3% return in a week from selling options is considered high, but that is due to the implied volatility (step 3) being high. The caveat for this strategy is if the stock goes below $10 you will be forced to buy 100 shares of LYFT for $10 regardless of how low the price gets by Oct. 27.

Selling Cash Secured Put

Selling a cash secured put involves holding the collateral to purchase 100 shares of a certain stock at a certain price. By selling a put, you will receive a premium. If the stock goes below the strike price the option will be exercised and the 100 shares will be purchased at that price. Regardless of the direction of the underlying stock, the option holder still receives the premiums.

Selling Covered Call

Selling a covered call involves owning 100 shares of a stock. Now after owning 100 shares of stock, you can sell a call and receive a premium. The 100 shares act as collateral and if the price increases to a certain level you will be forced to sell at the price within the option contract. Therefore selling a call would be considered a bearish strategy similar to buying a put.

Strategies

Selling options is a great way to add cash flow to your portfolio. Selling a cash secured put is a great safer way to enter into a stock position, and selling a call is a great pre determined price to sell shares. Both can be done while gathering premiums that can be used to do anything. The premiums can be low but is normally much higher than dividend income. Utilizing both puts and calls are the framework for the wheel strategy (details will come in a different post).

Selling Options Summary

Selling options isn’t as explosive or exciting as buying option. It also isn’t as cheap, you need a 100 shares (for selling a covered call) or the cash to buy 100 shares (selling a put). However, selling options is considered much safer than buying options. One to three percent a week is possible, so in the example above, $1000 receives $29 in premiums (2.9%), imagine doing this with more money and on a recurring basis. You receive the premiums regardless of the stock directions and many options expire every Friday. You can receive premiums every week! Thus making it more exciting than simply waiting for dividends at the end of a quarter.

More examples and current examples are coming!

Have you sold options before?

Comment Below!