Reasons For Selling Options

Finance Articles | March 31, 2009

Selling options has a ton of benefits in the stock market, especially when you are having trouble profiting from the market by buying options. Here are some of the major benefits you can get by being a seller.

1. You don’t Have to pick the exact line

When you profit from buying the stock or the options it is very important to find the exact point at which the stock will turn around. You want to be able to draw a support or resistance line that is your line of action.

When it gets to that point you want to get in a trade. But if you are wrong, oh well better luck next time. When you are selling options however you don’t have to know the exact point at which a stock will change directions.

For example when the market was making a large rally I knew it was overbought in the short term. I did not know exactly when it was going to turn around, but suspected it was going to pull back. So I sold a bear Call Spread.

If I had tried to find the exact point where it would turn around and head lower, I would have been stopped out numerous times and lost money. But because I sold the spread I was able to wait and finally profit when the markets did head lower.

2. It is less Stressful

It is less stressful to sell a far out of the money option and let the option expire then it is to find the exact point at which the stock is likely to turn around.

3. Higher Probabilities

Selling out of the money options gives you a greater chance of being successful on any 1 trade then buying the stock. That is because the stock does not need to move in your favor for you to make money.

It only need to not move against you too far. If you can find stocks like that you can be a profitable option seller.

For more on selling options visit http://www.stocks-simplified.com/option_selling.html

For more on selling option spreads visit http://www.stocks-simplified.com/Option_Spreads.html

Article Tags: Selling Options, Exact Point

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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.