January 22, by Ryan Grace. As traders, we can analyze the conditions, spot opportunities, and determine the appropriate strategies for our trades. If we perceive prices to be low, we can choose to buy, or if we think prices are high, we can decide to sell. This is one of the core concepts of our trading philosophy at tastytrade and to explain these concepts in further detail, our visionary creative team has filmed a new series of videos for you to devour.
You can check out the first segment below, which illustrates the logic behind selling premium through two main points; limiting profitability to improve probability and taking advantage of time decay. When selling options, the amount of money we get our credit we receive for the option is the most we can make on the trade. We can improve our chances of success by choosing to sell strikes at our desired probability of expiring out of the money.
What exactly does this mean? Well, look at it this way One way to do this is to sell a put option. When you sell a put option, you receive a set amount credit for selling the option and you want the price of the stock to stay above the strike price of the put.
Ideally, the put expires out of the money and is worthless. But what strike should you sell the put option at? Well, in the dough platform you can see the probability of each of the available strikes expiring out of the money and then choose your theoretical probability of success at the time you place the trade.
These probabilities are based on the current market conditions at the time you place the trade. Either way, selling options gives us the ability to select probabilities in our favor and improve our chances of making a profit. When buying options the time decay works against us, but when selling options, it works in our favor, since the goal when selling is to be able to buy the option back at a lower price and make a profit.
Let us know in the comments below and please check out more videos like it in our quick tips and trading strategies YouTube playlist! Choosing an options expiration date can be challenging as a new trader. This post will provide information and tips on choosing an optimal expiration date. Tune into this week's episode of Truth Or Skepticism to watch Dylan Ratigan co-founder of thinkorswim Scott Sheridan discuss important aspects of the financial industry! In this blog post, you will be able to learn more information about iron condors and strategies trading them.
Read here to see the links to these segments and learn more about iron condors! A little more explanation around selling options premium When selling options, the amount of money we get our credit we receive for the option is the most we can make on the trade.More...