How to Collect more Option Premium
Option sellers want to become more efficient in trading. They are always attuned to maximizing odds, sellers key toward being efficient, and efficiency often can mean getting the most bang for your buck. To option sellers, that means collecting big premiums.
What small changes can you make in your trading techniques so that you can make more profit.
How can you Receive more premium
There are many ways to bring in more premium for the options you sell. Firstly select options that moves a lot. They have a high Implied Volatility, and are more expensive. Secondly you may lean towards a more risk-averse stance, not all of these methods are advocated all the time. However, taken as a whole, these techniques will provide a solid primer and a broad arsenal for generating the maximum amount of premium for your account when you write options. The following strategies are used with options who has got a high implied volatility so that you collect more option premium.
1. Sell naked Options
While a lot of traders use defined risk options strategies it is not the most profitable way of trading. Defined risk strategies are most of the times a put spread combined with other single options or call spread.
Spread positions have merit, but for pure premium collection, there is no way to get more premium — and realize those premium more quickly — than selling naked positions.
While the word conjures up images of being exposed to too much risk and thus discourages many investors from exploring it, naked option selling can be done responsibly and effectively. It’s the cornerstone of the option-selling philosophy.
While naked risk must be managed more closely than covered risk, you are doing yourself and your portfolio a disservice if you do not consider selling naked in at least some situations. It’s the power play, the strong side sweep and the right hook in an option seller’s arsenal.
You can sell options In The Money with a lot of risk or sell options Out of The Money with less risk. You can sell options and select the amount of risk you want. A stock will close 68% of the time within 1 Standard Deviation. If you sell options select options with a strike price that has a 32 delta. When doing so you have only 32% change that the option becomes in the money and you loose (part off) the credit. See video on youtube
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2. Sell strangles
Selling strangles is the second way to collect more option premium. Instead of selling only a put option you may also sell a call option at the same time. This options strategy is called a strangle.
Selling strangles is more popular option strategy than selling straddles. Because you sell options at less risk. You select options 1 SD away from the market price. It can be an amazingly versatile strategy. It can be deployed in a wide variety of market conditions and has a magical effect on boosting your premium: Doubling your premium collected while reducing your margin requirement (as a percentage of that premium).
For instance, selling the put may bring in $500 premium and carry a $1,000 margin requirement. Selling the call may do the same. But selling them at the same time brings in the same premium but lowers the margin requirement. Thus, selling the put and call together brings a greater return on invested capital.
As a bonus, selling a strangle also comes with some built-in risk temperance. A move against your call is at least partially offset by gains in your put (and vice versa). Thus, a strangle can be a flexible way to build account premium quickly.
3. Sell Straddles
Selling Straddles is a popular option strategy. While not ideal for hard trending markets or breakout moves, selling strangles selling a put and a call with the same strike price.This strategy is used when you sell options with high Implied Volatility. It has a magical effect on boosting your premium: Doubling your premium collected while reducing your margin requirement (as a percentage of that premium).
4. Selling Jade Lizzards
Another way to collect more option premium is selling Jade Lizzards. In options trading, a jade lizard is a custom option strategy which consists of a bear vertical spread created using call options, with the addition of a put option sold at a strike price lower than the strike prices of the call spread. For one underlying security, same expiration date, this strategy consists of buying a call option at one strike price, selling another call option at a lower strike price, then selling an OTM put option at a strike price lower than that of both call options. The addition of the sale of a put option is consistent with the expected move of the underlying and results in additional premium collected. The jade lizard strategy takes advantage of the volatility skew inherently priced into options with naked puts trading richer in premium than naked calls and short call spreads trading richer in premium than short put spreads. This volatility skew effect allows the trader to collect more premium for the overall position and thus, increasing the position’s probability of profit. The term “jade lizard” was first used by former CBOE floor traders, Liz Dierking and Jenny Andrews, on the Liz & Jeny Show on the Tastytrade Network
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