Taking advantage of option melting

Many traders buy options when they want the stock to make a big move.  They buy calls when they think the stock is going up and buy puts when they think the stock is going down. 

The big disadvantage to this approach is that you need the stock to move to make money.  When you buy an option you pay for both intrinsic value and time value.  If you buy an option and the stock does not move the option’s value will go down just because time value will go down.

And if the stock turns against you, you lose money with both time value and intrinsic value.  In other words the stock definitely needs to move in your favor in the short term for you to profit.

Instead of trying to profit buying options and facings all the obstacles of the option melting away, why not take advantage of option melting by selling options.

You can easily take advantage of selling short term out of the money options and make money as the option premium melts away.  This way instead of only making money if the stock turns against you, you can make money as the stock moves in your favor, sideways, or even against you to some point.

One of the most efficient ways to do this, especially in a sideways market like we have today is by taking advantage of the iron condor strategy.  Selling far out of the money options on a channeling stock and take advantage of the options melting away as the stock does what it does, now that’s a strategy.

The other advantage to iron condors is that they allow you to raise your trading confidence as you will probably be right more then you are wrong.   That makes this strategy one of the preferred strategies among professional traders.

To learn more about the iron condor visit http://www.stocks-simplified.com/iron_condor.html

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