Market Conditions To Sell Expensive Options

As trader you want to find options which are most expensive options to sell. Why? Because you like to sell expensive and buy it back when they are cheaper. You will make more money when the options have higher option premium.

Why would premium selling be more beneficial for option traders at this market? Well, given that we have had some major price swings this week, volatility has certainly picked up and option prices have increased as a result.

One of the important things to understand is that implied volatility (IV) is a key pricing component in an option, and that out-of-the-money options (OTM) will be made up of entirely time premium. IV is embedded in this time premium and when volatility picks up in the market (such as this week) then premium sellers can take in more potential profits (assuming the options expire in the favor, of course).

We can gauge implied volatility in the options market by studying the VIX. Without getting into too much detail, the VIX is an index used to measure “fear” in the market. When volatility is high, the VIX will spike up and the premiums for options will generally be richer. Volatility is considered “mean reverting”. This means it tends to revert back to its “normal level” after periods of low or high volatility

Market Conditions To Sell Expensive Options

Selling expensive options is a great way to make consistent and steady premiums for monthly income. Here are our top 3 market conditions that we look for when selling options:


Spike in the VIX

Absolutely ranked number one on our list. Since part of an option’s value is derived in market volatility, a spike in the VIX or Volatility Index makes all options more expensive across the board. With higher premiums you are able to then Sell options MUCH further from the current market and  capture very impressive premiums for income.

Big company announcement

Earnings announcements, natural disasters, merger news are excellent event for traders. It  can send stock prices soaring or crashing lower. It creates great opportunities for option sellers to sell high IV options or expensive options.

High volume hedging trades

Sometimes it’s difficult to understand when investment firms are hedging their portfolio.  But we discovered that if there is more than 10X options volume and/or open interest on a strike price you can be almost sure that “Smart Traders” out there is trying to hedge their investments. Therefore, they don’t really believe that the market will fall that far, but just need some insurance in case it does. This is where you come in and sell options at higher prices and collect the hefty premiums.


Manage winners

You never know if the market moves in your favor turns around. And suddenly you find yourself with an loosing position. It is better to close many trades with a smaller profit than to see your profit melting away because you waited to long. We discovered that the time you to close your position if you can make 25-50% of the maximum profit. It will cut the time you are in a trade and you can redeploy your capital. By managing your trades early you will improve the number of winners and it will help to grow your Capital.

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