Selling Options When The Markets Are Volatile

Finance Articles | January 23, 2009

Selling options when the markets are volatile is a great way to make money in uncertain markets.

Selling options is a viable strategy especially when the markets are whipsawing back and forth. Most people think of option selling as a very risky strategy.

They hear the words unlimited risk and run away. But risks can easily be managed in the market and high success rates make option selling such a great strategy, especially when the markets are giving traders mixed signals.

So instead of trying to predict what the markets are going to do in the short term, you can simply sell premium. There are a few other reasons why option selling works great during volatile times.

1. You do not have to try to predict what a stock will do in the market. Anyone who is trying to trade the market right now is probably getting stopped out a lot, as the markets are changing directions nearly every day. With option selling you do not have to predict what a stock will do; only what it will not do.

2. Selling options has a high success rate. 80% of options on the market expire worthless. As an option seller you can easily take advantage of this and profit from them.

3. Time works on your side. As an option gets closer and closer to expiration the option loses time value. As a result you make money if the stock does nothing. This benefits you because in a sideways market stocks are often not doing very much, and you can profit from that.

4. When Volatility is high so are the option premiums. When a stock is making huge moves up and down the price of options is much higher then it normally is. Therefore when you have a sideways market not only does time value expire as it gets closer to expiration, but it also makes up more of the value of the option.

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

For more information about the stock market visit http://www.stocks-simplified.com/

Article Tags: Selling Options, Option Selling

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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. After trading for a while 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.