Selling Options instead of buying them

Finance Articles | April 16, 2009

Selling options is a great way to make consistant money in the stock market. There are a few advantages it has when compared to buying options.

Buying options can be a great way to make huge returns in the stock market. But they can also work against you in many different ways. Selling options, however can give you the same ability to make a good return, but with less risk.

Here are some reasons why selling options can be better than buying options

1. Selling Options gives you a higher Probability of being correct

If you are selling out of the money options you can benefit from the higher probability they bring. Instead of the stock having to move in 1 direction in a short period of time, you can choose to sell options and profit if it doesn’t move too far against you.

When selling options you don’t even have to pick a direction you think the stock will go, you only have to pick a direction that you do not think a stock will go, which is much easier.

2. Higher confidence

If you are placing trades with a high probability of success, that will affect your confidence. The more often you are correct the more confident you will be that your system works.

Swing trading with options can be hard because you will have a series of losses in a row at some point. It can be hard to pull yourself up and get back in the game when something like that happens. But when you sell options it is less likely you will get a series of losses, sure it will happen, but it is less likely.

3. Time Value

As options get closer and closer to their expiration date the time value erodes away causing the price of the option to shrink. If you are buying options this works against you and means your stock will have to make a big enough move to compensate for the decreasing time value.

When you are selling options this actually works for you, because you want the option to become worthless.

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

For some tips for traders visit http://www.stocks-simplified.com/stock_tips.html

Article Tags: Selling Options

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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.