Why You Should Write Options

Posted on 01. Oct, 2007 by Founder in Blog

Option selling as an investment strategy and/or profession has the following advantages over every other investment strategy in today’s market.

  • Very High Success Rate – The truth is that even if you have never traded this strategy before in your life, you are already more than 80% more likely to make money than an option buyer according to a CBOE study on option traders between 2003-08.  Add on the professional analysis and knowledge you get as a member and the success rate soars from there.
  • Non-Directional Trading - Most option traders buy a call if they think – predict - market is going up or buy a put if they think - predict - market is doing down. By writing/selling options, you avoid the game of trying to predict where prices will go. Instead you are projecting where you think prices won’t go. For instance, if you are bullish a market, you would sell an out of the money put option. In this case, the market can move up, stay the same or even move down, as long as it is above your strike price upon expiration, you will still take your full profit.
  • Definable Risk Control – Regardless of the label of unlimited risk in selling short options, option selling can be just as definable and controlled as any other type of futures or stock trade. Through the use of stop-loss orders – which you should always be using – you can control and limit your downside risk to meet your own risk tolerance. As a member we take care of risk management for you by alerting you to any adjustments or trades we close out to control losses.
  • Consistent Income – One of the best things about writing options is that they’re income-oriented. You receive a credit up front for opening a position and when the option expires worthless you get to pocket the net credit and move on to the next trade. It’s a consistent stream of income each and every month.
  • Time Is On Your Side – When writing/selling options, time value works for you instead of against you. The buyer of the option pays you a premium for that option. If you sell an out of the money option, the entire value of that option has is time value. As time passes, if the market behaves favorably, the option will gradually lose it’s value and expired worthlessly – leaving you will the whole premium you collected up front.
  • Taking Profits Is Simple – We’ve all hear at one point or another to “cut losses short and let winners run” right? Well this may sound good on paper, but emotions are the critical enemy of traders. A trader can sometimes get so excited about market move that they either take profits early due to fear or let losses compound due to hope of a reversal. When you write options, the decision of when to take profits is one you no longer have to make. The most you can make is the premium you collected when the option expires worthless. This is your clear profit objective – do nothing, simply let the option expire.
  • Get Out Of The House Already! – For us, the best thing about writing options is that we are free to do other things while our positions make us money.  As number 5 mentioned, our trades profit from the passage of time. So, feel free to go and do things that are more important than watching the market all day: spend time with your family and/or kids, read a book, workout, take up under-water basket weaving, whatever you want! It’s your life right? Shouldn’t you let your investments work for you – not work for you investments?

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