Selling options before their expiration

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Closing Options Early

One of the newest features of the binary options market allows for the ability to close trades before their expiration times. But recent trends have shown that brokers are becoming increasingly open to this feature and the increased account signups that have been seen indicate that traders are equally interested in the increased flexibility that is made available through these features.

But when exactly is the right time to close a trade prior to its contract expiry time? And what are the advantages of ending your trade early? Here, we will look at some of the ways that you can benefit from “early closures” in binary options.

Uses of the Option Buyback Function

The function to end an options trade early is referred to as the “option buyback” or the “early closure” feature. Generally, this action is taken in order to capture profits on an “in the money trade” before markets are able to reverse (and erase those profits), or to cut losses in a trade that is not expected to work out favorably before the contract expires.

Using the Early Closure Option to Capture Profits

In recent years, we have seen events (such as the Credit Crisis) which led to extreme volatility in the financial markets. These rapid changes in price can make the outcomes for trades less predictable and this can lead to trades that are profitable one day and unprofitable the next. There are many reasons why situations like this might occur. Some of the most drastic events could come with events like a natural disaster, a surprise central bank decision to change interest rates, a disappointing corporate earnings report or an unexpectedly strong macroeconomic data release can all lead to unpredictable changes in asset prices.

To be sure, this can be a positive (when the change falls in line with your trading direction). But it is nearly impossible to know when this favorable outcome will occur and when the news comes out on the opposing side, losses can be seen. This can be a highly frustrating (and costly) experience, as gains that were seen previously are suddenly wiped away.

In years past, there was nothing binary options traders could do but wait for their trades to expire – we were essentially at the mercy of the market’s moves. Unlike spot markets (like Forex) there were no defensive moves that binary options traders could take to preserve their gains. Now, however, traders are able to close a profitable position (using the early closure function) whenever one of these unexpected events occurs.

Using the Early Closure Function to Prevent Losses

In other cases, trades will move in the wrong direction and create losses to a trading account. Here, the early closure function is also useful. When it becomes clear that a trade is unlikely to turn positive before expiry, traders can close a trade early and reduce the amount of losses that would be seen later. For example, if an “out of the money” trade would result in a loss of 85%, closing the option early might result a more favorable outcome – such as a loss of 30% or 50%. These percentages will vary depending on which broker you use,and the market conditions seen when the option is bought back.

Rules to Remember When then Using Early Closure

It should be remembered that the early closure function is not something that should be used to arbitrarily close trades. When trading using market makers, the broker is on the other side of your position. If every trader used this function, losses would occur much less often and the market maker would eventually go out of business (because of all the losses they would absorb). Because of this, there are some rules in place when using this feature:

  1. Some trades (such as High Yield contracts) cannot be closed before expiration. If every broker enabled traders to close every trade with a 250% payout, market environments would not be in balance.
  2. There will be certain time periods when early closures are not permitted. For example, a broker might enable the early closure function when a trade has been open for a certain amount of time that opens up the early closure function after a trade has been open for a certain period of time (or within a certain period before expiration). Outside of this window, the function cannot be used.
  3. Early closure carries some extra costs. This means traders cannot receive full payouts when positions are closed early.

Early Closures Allow for Increased Trading Flexibility

The relatively new early closure feature at 24options allows trader to protect their profits and prevent against potential losses when unforeseen events shift the market. While there are some trading restrictions for this tool, the added level of trade structuring should be utilized in cases where a trade is unlikely to increase in profitability before the contract expires.

***Your capital may be at risk. This material is not investment advice.***

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How to Manage Expiring Options Positions

Tips for extending profits and reducing losses

As you well know, the third Friday of every month is known as “expiration Friday,” and I’d like to talk to you about how to manage your positions during this very active time for option traders.

Closing vs. Exercising

As an option buyer, whether calls or puts, you have right but not obligation when it comes to how you want to exit an option position. This means that, at any time during the life of your option contract, you can choose to either:

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  1. Close your position and bank the profits or curtail your losses; or
  2. You can “exercise,” which means you tell your broker that you want to buy stock at the option strike (if it’s a call option) or sell shares at the strike (if it’s a put option).

Many people buy options with one of two intentions: They can become long (buy) a stock (if they bought a call) or “put” (sell) their existing long shares (if they bought a put) to someone else at the strike price of their respective options.

But remember, if you don’t want to wake up on the Monday morning after expiration with a stock position that you might or might not want (or that you may or may not be able to afford), you must instruct your broker beforehand that you do not want to exercise your option if it finishes in-the-money. Better yet, you can close the option (i.e., “sell to close”) directly. That way, as soon as your order is filled, the trade is completely shut down and you have nothing more to do with the option or the underlying stock.

However, what if that position was a profitable one and you simply ran out of time with your trade?

Rolling Your Option Position

When you are in a winning position, and it looks like the position is going to continue in your favor but time is running out due to expiration, you don’t have to say goodbye to your winning streak.

When you want to continue profiting from a position that’s moving in your favor, you have the ability to lock in your profits while exposing yourself to additional upside with a technique called “rolling.”

In fact, you don’t have to wait until expiration week to “roll.” If you’re sitting on a nice profit in an option that expires six months from now, there’s no reason why you should wait six months to close your position and risk losing out on all the gains you’ve made. When you roll, you bank your profits and use your original investment capital to buy another option in a further-out expiration month. If the stock keeps rising, you can “roll up” your calls to a higher strike price, or “roll down” to a lower strike if you’re using puts. You can keep the momentum going for as long as your stock is running (or falling).

In other words, you have an incredible opportunity to lock in your profits and limit your risk, while maintaining the same-size position. When my stock-trader friends tell me how much better stocks are than options, I remind them about rolling to protect profits in a winning position and get situated for more profits (which you can’t do with any other security other than options). And I win that argument every time!

Rolling works for long options, but what about when you are selling options against a long stock (or option) position to generate income?

Expiration and Option Writers

When you sell options against your long stocks (or other long options) to collect premium while stocks are standing still or simply moving slowly, you do so to take advantage of time decay (i.e., the erosion of extrinsic value that happens most rapidly as expiration draws near). You will collect premium when you initiate the position (i.e., you “sell to open” the option). And, if the position works in your favor, the value of the option will decline.

I’m always surprised to hear option sellers debating whether to close the position before expiration (i.e., to “buy to close” the option) or to simply let it “expire worthless” if the position goes as expected and the option value declines.

First of all, if you are in a covered call position, it is a repetitive strategy that you do month after month. So, it shouldn’t be a problem to close out the expiring position before initiating the new one. However, if you aren’t planning to continue the position (I might ask, why not?), the risk of it NOT expiring worthless is why you close the position. Instead of watching and waiting for the option to expire, it’s best to buy it back. Chances are, you’ve gotten the lion’s share of the value out of the option, so it’s actually good to buy it back for a small loss.

Volatility tends to pick up during expiration week, as traders and investors take their old positions “off the board” and get repositioned in new expiration months and/or strikes. This could actually turn the price of your option in the wrong direction! If the stock is trading close to your option strike, you are taking a big risk in leaving your position to the fate of the expiration gods. The front-month, at-the-money strike options’ prices can change very quickly.

In other words, the option might be worth 10 cents now, but could shoot up to $1 going into expiration. That is risk you could have — and should have — removed from the table. This makes the case for not waiting until 3:59 p.m. Eastern on Friday to call your broker to close out!

Exercise vs. Assignment

Earlier, we talked about “exercise,” which is the buyer’s right — but the buyer is not obligated to exercise. So, who is obligated in the buyer/seller relationship?

It is the individual who sold the option who is obligated to fulfill the obligation that they got paid to take on.

With American-style options (most equities), option buyers have the right to exercise their option at any time during the life of the contract; sellers get assigned when a buyer exercises. As we saw in our covered-call example, the option seller was selling calls against a long stock position. You don’t ever want to be short options unless you have some type of hedge in case the position goes against you. The covered call strategy is best used on a stock that is in a slow-grinding uptrend. As the call writer, you can also profit if the stock stays still or even if it moves down a little bit.

However, if the call moves in-the-money at expiration (i.e., instead of declining in value, it starts gaining intrinsic value, or the amount by which it is in-the-money), you run the risk of having someone who bought that same option want to exercise it, which means that you as the seller would have to sell shares to them at the strike price.

The good news? You own the shares and can fulfill the obligation. The bad news? You’re out of your position!

Now, don’t blame your broker for taking you out of your position. It’s actually the Options Clearing Corp. (which guarantees both sides of a trade) that takes the people who are short that option and does a “random lottery” to determine who will fulfill the buyer’s obligation. To avoid assignment, you can buy back your short option at any time. If you needed another reason to close out your expiring options, remember that if your short option is in-the-money and you haven’t yet been assigned, you will be at expiration.

Expiration Does Not Mean Opportunity Runs Out

Options expiration sounds a lot scarier than it really is. Try to think of it in a more positive and realistic light: Expiration should serve as your reminder to “clean house” on your options account. You don’t have to watch the markets from moment-to-moment for as long as they’re open, but it pays to check in more frequently than you would with your longer-term holdings.

As an options investor, you’re spending less money to control the same-sized position in a stock to capture gains much more quickly than the traditional stock investor might ever be able to see. You don’t want to miss out on the opportunity to bank profits while you have them, to adjust losing positions while there’s still something left to work with, and to get repositioned for even better returns in the weeks and months to come.

When you think “expiration,” think “opportunities” to make more money.

Understanding Options Expiration (Profit and Loss)

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The profit and loss of an option position at expiration is a function of the original premium and the difference in price between the futures contract and the strike price of the option.

Selling a Call Scenario

Suppose you sell the 105 call for $2 in premium. The maximum profit potential for this trade is $2. Let’s look at a few different possible outcomes for the futures price at expiration.

To understand the profit and loss, we look at the math for each of these potential scenarios. You sold the option and collected $2 in premium. For each scenario the premium column will be $2 and the strike price is $105. This is the price at which you are obligated to sell the futures contract if you are assigned.

Sell Call Scenario One

In scenario one, the futures price at option expiry is $112. This option will be in the money and you would be assigned. You will sell the future for $105 creating an instantaneous $7 loss on the future. You collected $2 in premium and lost $7 on the future, so your net loss will be $5.

Sell Call Scenario Two

For scenario 2 we see the futures price at option expiry is $106. This option is also in the money and again you would be assigned. You will sell the future at the strike price of $105 and have a loss of $1 on the future. Since you collected $2 in premium you will have a net profit of $1.

Sell Call Scenario Three and Four

In scenario 3, the futures price at option expiry is $100. This option is out of the money and will not be exercised. There will be no loss from futures. Therefore, your $2 collected in premium will become your total profit.

Scenario 4 has the futures price at $94. This example is like scenario 3; the option will be out of the money and will not be exercised. Again, your final net position will be a profit of $2.

Buying a Call Scenario

Now let’s look at the same group of scenarios but from the buyer’s perspective.

In this case you buy a call at $105, and pay a $2 premium to the seller. We will look at your profit and loss potential using the same futures prices at option expiration.

Buy Call Scenario One

In scenario one, the futures price at option expiration will be $112. This option is in the money. You exercise the option at $105. With the futures at $112, this will result in a gain of $7. If you subtract the $2 premium paid for the option, your net profit will be $5.

Buy Call Scenario Two

For scenario two, the futures price at option expiration will be $106. Again, this option is still in the money. You exercise this option at $105 and make $1. You paid $2 in premium, so your net will be a loss of $1.

Buy Call Scenario Three and Four

Scenarios three and four are both out of the money options. In both cases you would not exercise the option. Your net loss has been capped at $2 which is the full premium paid for the option

Summary

These scenarios show you two views of profit and loss from either side of the same transaction. When looking at profit and loss potential of an option position at expiration, you will need to consider the original premium and the difference in price between the futures contract and the strike price of the option.

Selling Put Options: How to Get Paid for Being Patient

You don’t have to let the market dictate what price you’ll pay for an awesome company. You can name your own price instead, and get paid to wait for the stock to dip to that level.

That’s what selling put options allows you to do.

When you sell a put option on a stock, you’re selling someone the right, but not the obligation, to make you buy 100 shares of a company at a certain price (called the “strike price”) before a certain date (called the “expiration date”) from them.

They’re paying you for this option to increase their own flexibility, and you’re getting paid to decrease your flexibility.

But by doing this in a smart way, you can get paid to do something you already wanted to do anyway- buy shares of a great company if they dip in price. Then you can hold them for as long or short of a time as you want to.

By selling put options, you can:

  • Generate double-digit income and returns even in a flat, bearish, or overvalued market. You don’t need a strong bull market or fast business growth for great investment returns.
  • Give your portfolio 10% or so downside protection in the event of a market crash. In other words, if the market drops 25%, your equity positions would likely only drop 15%.
  • Enter stock positions at exactly the price you want, and keep your cost basis low. Buy during dips and get a better value than the current market price offers.

Like any tool, there’s an appropriate time and place to sell put options, and other times where it’s not an ideal tactic.

When used correctly, this is a sophisticated and under-used way of entering equity positions, and this article provides a detailed overview with examples on how to do it.

Put-selling example

Suppose you want to buy shares of a top-tier railroad company with a strong balance sheet.

Over the last twelve months, it has made $1.80 in earnings per share, and currently trades at $30.50 per share. It pays 50% of its earnings in dividends, over the last ten years has grown earnings by an average of 7% per year with moderate volatility, and there’s no clear catalyst ahead that you expect to significantly change these growth rates. This gives it a P/E ratio of 16.9 and a PEG ratio of 2.4.

First, you need to determine what the fair value of the stock is, using discounted cash flow analysis or a similar valuation technique.

Using the fair value calculator that comes with OptionWeaver, this stock has a fair value of $33.33.

Suppose that after deeper analysis, you decide the business is solid, and that you’d love to pick up shares at a 10% discount to fair value, which would mean under about $30.

That would give you a margin of safety in case the company grows slightly slower than expected, and would improve your overall returns if your growth estimates are accurate.

You could just… sit around and wait and watch, and maybe it’ll come down to $30 or below after a mediocre quarterly earnings release, and you’ll buy it then. Or maybe it won’t come down that low anytime soon, or ever. And for every month that it doesn’t, your cash is sitting on the sidelines and not earning any real returns.

A second method is simply to invest elsewhere. Maybe there’s another railroad trading at a better value that you can invest in instead. Or maybe you found a pipeline company that looks like a great investment at current prices. But what if the whole market is overvalued, and you’re having trouble finding anything trading at a discount to fair value?

The smart method here is to sell one or more cash-secured put options to take on the obligation to potentially buy the shares at a certain price before a certain date, and get paid money up front for taking on that obligation. You obligate yourself to do what you wanted to do anyway- buy the stock if it dips.

The investor that buys the option from you now has the choice, but not the obligation, to decide to sell you the shares at the strike price on or before the expiration date. As the seller, you have the obligation to buy them at the strike price if she decides to exercise the option to sell them to you.

To see current option prices, you just look up an option table, such as on Google Finance or Yahoo Finance or through your online broker. In this example, I’m looking at the put table for an expiration date 3.5 months in the future, and the current share price is $30.50:

Put Table: 3.5 months until expiration

Click here for a bigger version of the image.

Strike: This is the strike price that you would be obligated to buy the shares at if the option buyer chooses to exercise their option to assign them to you.

Price: This is the price that the option has been selling for recently. This is basically how much the option buyer pays the option seller for the option.

Change: This shows you the recent changes in the option pricing.

Bid: This is approximately what you’ll receive in option premiums per share up front if you sell the put. A market maker agrees to pay you this amount to buy the option from you.

Ask: This is what an option buyer will pay the market maker to get that option from him. The difference between “bid” and “ask” is the market maker’s profit. He’s the middle man between option buyers and sellers that makes this a liquid market.

Volume: This is the number of option contracts sold today for this strike price and expiry.

Open Interest: This is the number of existing options for this strike price and expiration. It’s the sum of all option volume leading up to today, minus any option positions that were closed prematurely.

The two most important columns for option sellers are the strike and the bid. The strike is the amount you’re agreeing to buy the shares for if the option is exercised, and the bid is roughly the amount of premium you can expect to earn when you sell the option.

As you can see in the picture, there are all sorts of options at different strike prices that pay different amounts of premiums. And this picture only shows one expiration date- there are other pages for other dates.

In this example, the option that stands out to me as a good choice is the one with a strike price of $30. It’s just below the current stock price of $30.50 and offers a decent premium bid price of $1.43.

Let’s go with this one:

Click here for a bigger image.

If you sell this option, it means you’ll receive $143 now from the option buyer, and you’ll be obligated to buy 100 shares of this railroad company at $30 each if the buyer wants, for a total of $3,000, any time before the expiration date of the option in 3.5 months.

If you sell several options, you’ll be obligated to buy several hundred shares. Each option is for 100 shares.

A conservative investor always has cash available to back this up. You would have $3,000 in cash for each of these options in your brokerage account locked away and ready to buy the shares if they are assigned. This makes it cash-secured. If you do not have the cash available, it would be called a “naked” put, which is highly speculative and not what this guide covers.

In this case, you really need just $2,857 in cash up front, because as soon as you sell the option, you’ll receive the $143 in premiums right away which will bring you up to the full $3,000 amount needed for it to be cash-secured.

So, let’s say you sell this option. Here are your inputs, as well as the potential outputs of what can occur, courtesy of OptionWeaver:

Let’s go over those possible outcomes.

Possibility A: The stock stays over $30 at expiration

If, over the next 3.5 months, the railroad generally stays above $30/share, the option buyer will likely not assign you the shares, since there would be no reason for her to force you to pay exactly $30/share when the market price is already over $30/share. Her option will expire worthless, you’ll keep your $143 premium, and your $3,000 in secured cash will be freed up for selling another option.

Here’s the rate of return calculation if the option expires:

$143 / $2,857 = 0.05 = 5%

You made a 5% rate of return on your initial cash in about 3.5 months. This would be about 18% annualized returns on your money if you do this a few more times for the rest of the year. Compare this to the historical S&P 500 return of around 9%. You’re getting paid a hefty sum of money compared to historical equity returns to just sit around and wait for a price dip for a company you want to own.

Possibility B: The stock declines under $30 at expiration

Let’s say that in 3.5 months, when this option is about to expire, the railroad stock is selling for $29.50/share. So, it dipped a bit. You still get to keep the $143 premium, and the option buyer will assign you to buy the 100 shares for $30 each.

This means that your effective cost basis for the purchase of these shares was only $28.57, which is below your target buy price, like you wanted. You ended up having to buy them for $30 each, but you also received a $1.43/share premium up front, offsetting part of the cost. The net cost basis is that you had to pay $28.57/share, or $2,857 for 100 shares.

And now, you currently own 100 shares of a fine railroad company that currently trade for $29.50 each. You bought a great company at a great price, and now hopefully you can expect plenty of capital appreciation and dividends over time.

Put option risk profile

Selling put options at a strike price that is below the current market value of the shares is a moderately more conservative strategy than buying shares of stock normally. Your downside risk is moderately reduced for two reasons:

  • Your committed buy price is below the current market price
  • You receive an option premium up front, regardless of what happens with the option or stock after that.

The net result of this is that you’re committing to an effective cost basis that is well below what you’d have to pay if you just bought the stock on the open market today. In the previous example, the market price was $30.50, and you committed yourself to a $28.57 cost basis.

However, as many put-selling tutorials will tell you, selling puts is “risky” because the downside risk outweighs the upside potential. The maximum rate of return you can get during this 3.5 months is a 5% return from put premiums. Your returns are therefore capped at 5%, or 18% annualized if you keep doing it. Your downside risk, however, is potentially very big. If the railroad were to suddenly go bankrupt and drop to $0/share, you’d be forced to buy them for $30/share, which would cost you $3,000. You’d at least get to keep your $143 premium to go out to a bar and buy drinks for your friends to cheer up.

Of course, if you simply had bought the railroad stock normally without any put-selling, you’d be in the same position, except slightly worse. If you own any stock and it goes bankrupt, you can lose your entire investment. And in that case, you wouldn’t even have the $143 premium. Your friends would have to buy you drinks at the bar.

That’s why this strategy necessitates buying high quality companies. I prefer companies that pay dividends, companies that have economic moats, companies with a differentiated product or service, and companies that have weathered recessions in the past. Put selling is moderately more conservative than normal stock buying, but you still must pick high quality companies to minimize your downside risk.

I see people teaching different put-selling strategies on more volatile, high-risk stocks with no intention to ever buy them, just to speculate with high premiums, and that’s not something I recommend for most people. I only suggest selling options on companies with a moat and a good balance sheet that you would actually like to own at the right price.

Put selling isn’t about hitting home runs. It’s about hitting a single or a double and getting to base almost every time. You either get paid a nice chunk of extra money for waiting to buy a stock you want at a lower price, or you get assigned to buy the stock at a low cost basis thanks to the option premium. It’s a tool that value investors can use to enter positions in great companies at great prices.

This chart shows the potential rate of returns of this option sale compared to buying the stock today at face value:

The horizontal axis gives a range of potential prices that the stock might be at during option expiration. The vertical axis indicates the rate of return over the lifetime of the option for each ending price, which was 3.5 months in this case. The pattern you see continues off the chart, from zero to infinity.

As you can see, upside potential is capped at 5% for the period (or 18% annualized), but your returns below that point are better than if you buy the stock outright.

Therefore, it’s a strategy not for when you’re extremely bullish, but for when you’re trying to buy the stock at a cheaper price, and when you’re trying to generate income and obtain some downside protection in an overvalued market.

A bullish LEAPS put-selling example

A similar strategy to the above example is to sell longer-term put options that are in the money, meaning the strike price is above the current market price.

“LEAPS” stands for long-term equity anticipation securities. In other words, options that have an expiration date that is more than 12 months away.

The premiums for this type of option will be higher, and thus even though the strike price is higher than the market price, your cost basis if you buy the shares will be considerably lower than the market price.

There are a few main benefits of doing this type of option:

  • Because it is in the money, it increases the odds of the option being exercised, while still giving you a lower cost basis on the purchased shares. Exercised options are often more tax-efficient than expired options.
  • If the option extends into the next calendar year, it will defer taxes for an entire year.
  • It gives you a high upside cap, thus allowing you to be bullish, while still giving you downside protection compared to buying at the current market price.
  • During periods of high volatility and high option premiums, you can sell these long-term options to “lock in” the high premiums. If instead you keep selling short-term options, volatility may decrease during the rest of the year and give you lower premiums.

Here’s an example from when I originally wrote this article:

Put Table: 13 months until expiration

Click here for a bigger image.

This company engages in oil refining and owns a stake in an MLP for oil transport, currently trades for $29.20 per share, and pays a 4.5% dividend yield. Shares took a big price hit when oil prices collapsed in 2020, as refining margins decreased, and the stock had been roughly flat ever since.

Their balance sheet is strong, and Morningstar analysts are very bullish on the company and believe their fair value to be north of $40/share. OPEC agreed around this time to a deal to cut oil production, which has resulted in rising oil global prices, which should benefit this refiner in the long term by increasing their margins.

For this example, we’ll go with the option highlighted in red. If you sell that cash-secured put option for a strike price of $30, you’ll receive $5.50 in premiums per share, and it will expire in 13 months.

If it expires:

If the stock price goes up to over $30 by the time this expires, which is only a slight increase, then you’ll earn a 24% rate of return in 13 months and won’t be buying the shares. And you won’t pay taxes on these premiums until over a year after that.

If it is exercised:

On the other hand, if the stock price is under $30 by expiration, then you’ll buy at $30/share. Your cost basis including the premium will be just $24.50/share.

If you believe the company is fairly-valued or undervalued, then this is a great investment in terms of risk and reward. You could make as much as 24% on your money in a year, and yet you also have considerable downside protection.

If the stock just stays flat all year at $29.20, you’ll buy it in 13 months at a cost basis of $24.50/share, for a rate of return of 19%.

The stock would have to drop a full 16% in price from $29.20 to $24.50 just for your investment to break even. Anything above that, and you make money.

And if the stock price drops a whopping 30%, down to $20.44/share, then your loss would be less than 17% on paper, since you will have paid $24.50 for shares that are now worth $20.44. At that point, if the fundamentals are still sound, you’ll be holding it and can collect dividends from it, so as long as you have a long-term view, you’ll likely do well as the price recovers.

Overall, this is an incredible option as long as you believe the company is a decent holding at around this price in the high $20’s. You can make market-beating returns simply for the stock remaining flat or going up, and you have more than 10% downside protection in case it falls. You’re committing to a cost basis that is about 16% below the current market price.

The right option to sell depends on the scenario. If you’re trying to minimize fees and taxes, and trying to maximize downside protection, LEAPS puts can be the way to go. On the other hand, if you’re trying to maximize premiums, especially in non-taxed or deferred-tax retirement accounts, shorter-term puts can give you a better return.

Final Words

Selling put options is one of the most flexible and powerful tools for generating income and entering stock positions.

Rather than buying shares at whatever the market currently offers, you can calculate exactly what you’re willing to pay for them, and then sell the put option to get paid to wait until it dips to that level.

This tactic is excellent for overvalued markets, as well as flat/bearish markets, because you can generate high returns even as the stock price stays flat or falls a bit, and can build 5-10% or more downside protection into your portfolio.

And while it’s not the perfect tactic for a strong bull market, it can be tailored to do reasonably well in that area as well, especially because you can tweak it by selling in-the-money options.

If you want more information, check out OptionWeaver. It’s a PDF booklet and excel calculator that helps you determine the fair value of stocks and figure out which options to sell.

It also includes a list of 50+ stocks and ETFs that I use as my baseline watchlist for selling options on. These are stocks and ETFs that meet all of the main criteria for being good securities for selling options on, and helps investors get started.

I also publish a free newsletter every 6 weeks or so that, in addition to updating readers on a variety of investing opportunities and economic information, often contains recent put options I’ve sold. Join here if you’re interested.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners and Middle-Leveled Traders!
    Free Demo Account!
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  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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