selling options this video is going to serve as a guide for you to learn how to sell options in many
ways it's an introduction to option selling David Jaffee with beststockstrategy.com you can visit
beststockstrategy.com enter in your email address and receivable for $400 of valuable free training
so if your goal is to beat the market or acquire shares of large cap companies or indices below
where they're currently trading at then you can sell put options many people get in trouble when
they trade or sell options because options are leveraged products so by Nature while you can
make a lot of money and exceed the returns of the S&P 500 by trading options you can also lose
a lot of money when you trade options and there are many components of options trading that you
don't necessarily have to worry about when buying and selling stock the primary component that you
have to be concerned about when you sell options or you buy options is volatility but I'm going to
tell you a way later on in this video where you can essentially neutralize volatility so that
you don't really have to be concerned about it whether you're a beginner or an expert options
Trader the same steps are going to apply trading options and being profitable is actually not that
complicated in fact the more experienced that I've become by trading options the more simple
my trading has become so all those times that you see people in front of like 10 different
monitors and they're glued to their screens for five hours a day and they're trying to enter a
trade and exit a trade as quickly as possible in my opinion virtually all of them lose money now if
they're front running their followers then that's a different story but there are numerous research
studies out there that virtually all day Traders lose money and that there's no learning component
to day trading but as far as selling options the reason why it works is that you have a statistical
Edge when you sell premium for example let's say Google is trading at about a hundred dollars a
share you can sell a put option and agree to buy Google at a price of ninety dollars and in
exchange you can receive around one dollar or for every contract that you sell because one contract
is equal to 100 shares you'll receive a hundred dollars for agreeing to buy Google at ninety
dollars which in our hypothetical example is ten dollars below where it's currently trading at
so imagine that you're actually getting paid to buy a large cap stock at a discount to where
it's currently trading at but again like I said previously because of the leverage that's inherent
in options trading if you get too greedy and the market sells off by 15 or 20 percent then you can
end up losing a lot of money the first step that you really need to do is create a watch list and
ignore everything else your watch list should include stocks that are Market leaders as well
as some indices your watch list can include QQQ, VOO, SCHD VT as far as individual stocks your
watch list can include Amazon Microsoft Google LMT or Lockheed Martin JPM or JPMorgan Chase WM
or Waste Management by trading large cap stocks like these and also indices you're allowing the
efficient market hypothesis to work in your favor you don't have to necessarily read the financials
of these companies or monitor the news because almost all of the available public information
is already priced into these stocks the next thing that you have to do is look at the recent training
range so I tend to look at the last three to six months and I give higher priority to the
more recent trading range when one of these large cap stocks has pulled back by around 10
or 15 percent I'll then sell a put option that is an additional 10 to 15 percent out of the money
and then I'll collect premium you also have to choose the expiration date I discuss more about
expiration dates in my options trading education course at beststockstrategy.com memberships then
what you want to do is you want to sell an out of the money put credit spread in the past I was
a big proponent of selling naked options I also believe that overall selling put vertical credit
surprise is a superior strategy to trading naked and there are three primary benefits of selling
vertical credit spreads the first first is that they are much more Capital efficient than trading
naked options the second is that their defined risk so as a result you know your maximum amount
that you can possibly lose every single time you make a trade and the maximum amount that you could
possibly lose is the width of the strikes less the credit that you receive so going back to the
example that we spoke about earlier if Google is trading at a hundred and you sell a 90 by 85
credit spread and you receive let's say a dollar for entering that trade then as a result your
maximum net loss is going to be four dollars or four hundred dollars for every contract that you
sell and finally the third major component and the reason why I really enjoy selling vertical
credit surprise is that it essentially neutralizes volatility one of the problems with selling naked
options is that if you sell a naked option when the VIX trading below 20 and then suddenly the
market pulls back by 15 or 20 percent in a short period of time and VIX spikes up to 40. even
if your naked option is nowhere close to being challenged you're still going to end up showing
a major loss on that naked put option just simply due to the large volatility expansion that has
already taken place and remember many Brokers have multiple types of margin that they extend to their
customers they have Regulation T or Portfolio Margin and you have your available buying power
but they also have something called risk margin where they stress test your account and if the
market were to fall 20 or 25 percent and that were to lead to a large decline in your overall
portfolio then they might force you to close out the position as a result it is inherently better
and safer to remove portfolio volatility and to remove your tail risk and the risk of Black Swan
events by selling vertical credit spreads as opposed to trading and selling naked options
the final component in this introductory tutorial to selling options is you need to buy
options especially when they're cheap by buying options over and above the long put options that
you purchased for your vertical credit Sprouts that will allow you to further reduce portfolio
volatility and additionally you will make money in all Market environments especially during
times when the market has a precipitous fall and it drops by 10 or 20 or even 30 percent in a very
short period of time by selling options you are able to make money in all Market environments when
the market goes up you'll profit from Theta Decay when the market is sideways your profit from Theta
Decay when the market goes down you will also profit because your short puts will be protected
since you entered those positions as vertical credit spreads and additionally you should be
able to make multiples on your long put options that you purchase that opportune times in order
to protect yourself against the tail risk and to protect yourself against the Black Swan event
in order to reduce portfolio volatility David Jaffee with Beststockstrategy.com if you want
a much more in-depth analysis on how to trade and sell options you can visit beststockstrategy.com
memberships and enroll in the education course if you have any questions and leave a comment
below I thank you for your attention and I encourage you to subscribe to this channel