Learn Options Selling

Master the art of generating consistent income through options selling strategies

Table of Contents

What is Options Selling?

Options selling is a strategy where you collect premium income by selling options contracts to other traders. As the seller, you receive money upfront in exchange for taking on certain obligations.

Benefits
  • Generate consistent monthly income
  • Profit from time decay (theta)
  • Lower volatility than buying options
  • High probability strategies
  • Compound your returns over time
Risks
  • Limited upside potential
  • Assignment risk
  • Requires significant capital
  • Market volatility impact
  • Early exercise risk

Covered Calls Strategy

A covered call involves selling call options on stocks you already own. You collect premium income while potentially selling your shares at the strike price.

How it Works:
  1. Own 100+ shares of a stock (e.g., AAPL at $150)
  2. Sell a call option above current price (e.g., $155 strike)
  3. Collect premium immediately (e.g., $2.50 per share = $250)
  4. Wait for expiration - Keep premium regardless of outcome
Example Scenario

Stock: AAPL trading at $150

Action: Sell 1 call option with $155 strike, 30 days to expiration

Premium: $2.50 per share ($250 total)

Outcome: If AAPL stays below $155, you keep the $250 and your shares

Ideal Conditions
  • Sideways/slightly bullish market
  • High implied volatility
  • 30-45 days to expiration
  • Strike 5-10% OTM

Cash-Secured Puts Strategy

A cash-secured put involves selling put options while holding enough cash to buy 100 shares if assigned. You collect premium and may acquire shares at a discount.

How it Works:
  1. Hold cash equal to 100 shares (e.g., $14,500 for $145 strike)
  2. Sell a put option below current price (e.g., $145 strike on $150 stock)
  3. Collect premium immediately (e.g., $2.00 per share = $200)
  4. Wait for expiration - Keep premium, may buy shares at strike
Example Scenario

Stock: AAPL trading at $150

Action: Sell 1 put option with $145 strike, 30 days to expiration

Premium: $2.00 per share ($200 total)

Cash Required: $14,500

Outcome: If AAPL stays above $145, you keep the $200. If below, you buy 100 shares at $145

Ideal Conditions
  • Want to own the stock
  • High implied volatility
  • 30-45 days to expiration
  • Strike 5-10% OTM

Getting Started

Education First
  • Learn options basics
  • Understand Greeks (Delta, Theta, Vega)
  • Practice with paper trading
  • Study risk management
Start Small
  • Begin with 1-2 contracts
  • Choose liquid stocks/ETFs
  • Start with 30-45 DTE
  • Target 0.30 delta or less

Risk Management

Position Sizing
  • • Never risk more than 5% per trade
  • • Diversify across multiple stocks
  • • Don't concentrate in one sector
  • • Scale position size with experience
When to Close
  • • 50% profit rule
  • • 21 DTE management
  • • Delta exceeds 0.50
  • • Underlying thesis changes
Portfolio Management
  • • Track all positions
  • • Monitor total exposure
  • • Plan for assignments
  • • Keep cash reserves

Advanced Strategies

The Wheel Strategy

Combine cash-secured puts and covered calls in a cycle:

  1. Sell cash-secured puts
  2. If assigned, sell covered calls
  3. If called away, repeat with puts
  4. Generate income in all market conditions
Best for: Neutral to slightly bullish outlook on quality stocks
Poor Man's Covered Call

A capital-efficient alternative to covered calls:

  1. Buy deep ITM LEAPS call (90+ DTE)
  2. Sell short-term OTM calls against it
  3. Collect premium with less capital
  4. Manage like a covered call
Best for: Expensive stocks when you can't afford 100 shares

Common Mistakes to Avoid

Don't Do This
  • Selling options on stocks you don't want to own
  • Chasing high premiums in risky stocks
  • Selling options too close to expiration
  • Ignoring earnings announcements
  • Not having an exit plan
  • Emotional decision making
Do This Instead
  • Focus on quality, liquid stocks
  • Prioritize probability over premium
  • Give yourself time (30-45 DTE)
  • Check earnings calendar
  • Set profit targets before entering
  • Stick to your trading plan

Resources & Tools

Our Tools
Educational Resources
Analysis Tools

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Important Disclaimer

Options trading involves substantial risk and is not suitable for all investors. Past performance is not indicative of future results. Please consult with a qualified financial advisor before implementing any options strategies. The information provided is for educational purposes only and should not be considered as personalized investment advice.