What Is Stock Rate Of Return If Price Is 35.00 Benefits of Selling Option Premium

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Benefits of Selling Option Premium

How would you like a profitable strategy that involves not predicting where the market will go before the expiration month, but where the market is unlikely to go before the options expire.

Further more, if you could use a calculator indicating the probability of being successful on a trade more than 80% of the time would you take the trade? If so you want to be trading option spreads.

By becoming a seller of options you can consistently average 2-10% per month ROI. Yes, PER MONTH! This is possible because options lose value over time. The last 30 days of the options will decrease in value at an accelerated pace. This decrease in value (aka time decay) is also known as the Greek letter, Theta.

Using credit spreads is the best way to achieve this. Credit spreads are the secret that successful traders keep to themselves. It’s about bringing cash in and then keeping it. Because of the effect of time decay, you can make money without predicting the direction of the market. To do this we use a probability calculator to determine how far out we need to be while still producing an acceptable return. Since stock prices generally don’t move too far in one direction without retracing or only move a certain percentage over a given period of time, it’s best to sell options far enough away so that probability and time decay works in your favor.

There are two types of credit spreads. Bull Put spread and Bear Call spread. Bull Put spread and Bear Call spread consist of buying and selling of an option for the same underlying.

A bull call spread is constructed using two options of the same type, but with different strike prices. The bear call spread involves selling the lower strike option, and buying the higher strike option.

Example:

With the share price at $35.00, you enter the following position:

Sell 1 XYZ Feb 40.00 Call @ $0.50

Buy 1 XYZ Feb 42.00 Call @ $0.25

Total credit is $.25

Max risk is $1.75

If price never reaches $40 you get to keep the entire credit. This is the joy of selling options.

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