10 Points to Remember When Selling Options | Angel One (2024)

FAQs

What to look for when selling options? ›

Consider factors such as timing, underlying asset price and volatility when deciding on the right time to sell an option. If you want to know when to sell an option, consider its maturity: the shorter its time left, the more its premium tends to decay.

An example of an options contract will make this clearer. Suppose you expect the share price of ABC company, currently at Rs 100, to fall. You then buy an options contract to sell the share at Rs 100 (this is called the `strike price'). If the ABC price then falls to Rs 90, you would have made Rs 10 on each option.

The most common options trading strategies to generate income are covered calls and cash-secured puts. A covered call involves selling a call option on an underlying asset that you own, and the premium collected from the sale of the call option provides income.

When you sell an option, the most you can profit is the price of the premium collected, but often there is unlimited downside potential. When you purchase an option, your upside can be unlimited, and the most you can lose is the cost of the options premium.

The Call Ratio Backspread consists of two parts: selling one or more at-the-money or out-of-the-money calls and purchasing two or three calls that are longer in the money than the call that was sold. This strategy is also considered the best option selling strategy.

Options selling is a popular trading strategy that involves selling options contracts to other traders. An option contract is a financial instrument that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and time.

Bullish Option Strategies

This is the simple strategy of buying a call option at a strike price, which you expect to be lower than the spot price on the expiry date. For example, if you expect the spot price to be ₹1,000 on the expiry date, buy a call option at a strike price lower than ₹1,000, such as ₹900.

All calculations depend upon your existing position in the underlying: For buying an option = quantity * premium. For selling an option = SPAN + Exposure + Additional margin required by the exchange - Premium Amount received.

If you're wondering if I can make a living trading options, you can trade options full-time and make a comfortable living. But first, you must know how to trade put and call options properly. Learning technical analysis is key if you're looking to enter the wonderful world of trading options for a living.

Which option strategy is most profitable? ›

1. Bull Call Spread. A bull call spread strategy is driven by a bullish outlook. It involves purchasing a call option with a lower strike price while concurrently selling one with a higher strike price, positioning you to profit from an anticipated gradual increase in the stock's value.

Now it has been seen that a seller of an option has 2/3rd chance of making profit whereas a buyer of an option has only 1/3rd chance of making profit.

You might very well have the patience and diligence to get rich with options. It will probably take you years to accomplish, but with dedication and effort it is entirely possible to make a lot of money with options on top of your long-term investing.

Selling options is riskier because your potential losses are uncapped. As the option seller, you receive the premium upfront but are obligated to buy or sell the underlying asset at the strike price if assigned. This exposes you to unlimited risk if the market moves against your position.

Traders would sell a put option if they are bullish on the asset's price and sell a call option if they are bearish on the price. "Writing" refers to selling an option, and "naked" refers to strategies in which the underlying security is not owned and options are written against this phantom security position.

If you think the stock price will move up: buy a call option, sell a put option. If you think the stock price will stay stable: sell a call option or sell a put option. If you think the stock price will go down: buy a put option, sell a call option.

Check the Volatility

Compare the level of implied volatility with the stock's historical volatility and the level of volatility in the broad market, since this will be a key factor in identifying your option trade/strategy.

If the price of the option is above the intrinsic value then it is overpriced and needs to be sold. If the price is below the intrinsic value it is underpriced and needs to be bought. This is an important factor while deciding whether to buy or sell options.

If you are looking for an option selling strategy that has unlimited profits with limited risks, then the synthetic call strategy is the best way to go. As part of this strategy, the trader purchase put options on the stock that they are holding and which they think will rise in the future.