5 Tips For Selling Options Profitably

2023年9月13日

Hey guys! In this post, we'll detail 5 key tips to keep in mind while selling options that can massively improve trading results over the long term. Let's jump in.

Selling options has become a more popular strategy lately, due to the fact that traders can control, to some degree, their win rates and R:R setups. If you've followed us for any length of time, you know we're big fans of selling puts.

This is because there are only a few things that most traders and investors care about when they get involved in the markets:

- Returns
- Volatility
- Difficulty
- Repeatability

Selling puts is a great blend of all four.

However, shorting put options to outperform the market is simple, but it's not easy.

Here are 5 key tips to improve your option selling skills:

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1.) Make sure the underlying stocks are high quality. ✅

Selling put options is no different than building a portfolio of stocks.

There's a chance one could be assigned, and it's key that you're ok sitting in a position for a while as it chops around.

Let the edge work.


2.) Avoid selling puts when the VIX is low. 💥

Low 'fear' in the market = cheap insurance.

Low premiums = bad things happening when stuff goes wrong.


3.) Look for stocks that have sold off. 📉

Oversold stocks (that are high quality) are perfect candidates for selling puts.

Unless they are in a brutal downtrend, the recent selloff means there's more fear, which means higher premiums.

It also means a better entry price.


4.) Set a minimum return requirement. 💸

If the puts you're selling don't yield more than the S&P 500 does annually, then why bother?

Make sure that the annualized yield of the puts you're selling total more than 7-8%, and ideally more than 12%.

Compounding is the goal.


5.) Don't use leverage. ❌

Using leverage is a quick way to the poor house if something goes wrong.

It's much better to build a portfolio of positions in cash where no position takes up more than ~3% of exposure.

It can be "expensive" to start, but it's worth it.

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There you have it - 5 key tips for selling options. We hope you enjoyed!


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