2. Synthetic Call: The synthetic call happens to be one of the best options selling strategies, that investors know about. This strategy ensures unlimited profits with limited risks.
One popular strategy involving call selling is the covered call, where you sell call options against stocks you own. It's a way to potentially earn income from stocks you own, but if the stock price rises above your strike price, your stock might get “called away.”
The clear rule for intraday options trade is to choose strike price nearest to the current Spot/Cash market price. Either At-The-Money(ATM) Option or In-The-Money(ITM) Option strike prices should be chosen for trade execution. No need to look at Out-Of-Money (OTM) option strike prices.
While selling options is generally effective all the time, they are even better in high-volatility markets because volatility has been shown to be mean-reverting over time. Still, it can make sense to add long spreads to your portfolio when volatility is on the lower end of its range.
To sell options, follow these steps: understand the basics, set up a brokerage account, assess risk tolerance, analyse the market, choose strike prices and expiration dates, evaluate premiums, monitor positions, employ risk management strategies, and engage in continuous learning for market adaptability.
1. The long call. The long call is an options strategy where you buy a call option, or “go long.” This straightforward strategy is a wager that the underlying stock will rise above the strike price by expiration.
The most you can profit from selling options is the premium collected, while the upside potential of buying an option can be unlimited.
Secondly, Options help in reducing your cost to hold stock. For instance, if you've been keeping a stock and the price for that stock has not moved at all. In this case, you can sell higher call options, thereby earning a premium and reducing the cost of holding that asset.
To become successful, options traders must practice discipline. Doing extensive research, identifying opportunities, setting up the right trade, forming and sticking to a strategy, setting up goals, and forming an exit strategy are all part of the discipline.
You may want to sell options before the expiration date if: You do not expect the option to pay off and instead plan to profit by selling it and getting the premium upfront. The option is declining in value, and you can make another trade at a lower premium that offsets the loss.
Options trading requires a lot of patience and isn't a get-rich-quick scheme, but it does offer a way to get rich in the long run if you're good at it. As you develop as an options trader, you'll need to learn a few simple options strategies and how you can diligently craft a strategy to build a full-time income.
The safest options strategy is the covered call where a trader holds a long position in an asset and sells call options on the same asset to generate income.
The 9:20 0 DTE straddle, as mentioned earlier in the introduction, is a type of straddle strategy wherein the trader enters a straddle at 9:20 AM in Indian markets, soon after the market opens. Here, 0 DTE stands for “zero days to expiration”. And this means the options you buy expire on the same day.
The most successful options strategy for consistent income generation is the covered call strategy. An investor sells call options against shares of a stock already owned in their portfolio with covered calls. This allows them to collect premium income while holding the underlying investment.
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
Also called the 1-3-2 butterfly spread, it is a common variation if the butterfly spread involving buying one option at a lower strike, selling three at a middle strike, and buying two at a higher strike. This advanced options trading strategy offers more flexibility.
The most profitable option strategy varies based on market volatility and risk appetite. Strategies like selling covered calls or cash-secured puts can generate consistent income, while directional strategies such as long straddles or iron condors thrive in high volatility environments.
Do people sell options for a living? Yes, many traders sell options for a living. However, whether an options writer can earn enough income selling options heavily depends on their portfolio size and risk tolerance.
If you are looking for an option selling strategy that has unlimited profits with limited risks, then the synthetic call strategy is the best way to go. As part of this strategy, the trader purchase put options on the stock that they are holding and which they think will rise in the future.
Buying a Call
Buying (going long) a call is among the most basic option strategies. It is a relatively low-risk strategy since the maximum loss is restricted to the premium paid to buy the call, while the maximum reward is potentially limitless.