Option Selling – The Best Business

geicko-lizardWarren Buffet states that insurance is the world’s most profitable business. Different companies are selling reams of insurance policies and collects payment for each. Only a few of those result in claims – which are paid out of premiums collected. The rest is kept as profit.

What is the world’s most profitable business?

The option selling business has many similarities. You sell a variety of these “insurance policies” across a swath of different uncorrelated markets. A variety of uncorrelated markets like Bonds, coffee, gasoline and gold ensure that one “claim” is limited to a small portion of your overall “policies.” While you will pay out on a few, the majority should keep feeding you cash premiums every month.

Big successful insurance companies like AllState and (Buffet owned) Geico know the value of diversifying your policies. Remember, you’re the underwriter. You don’t want 100% of your policies written on Florida coastal properties during hurricane season. Better to have a small amount in every state. (This is a key mistake many neophyte option writers make.)

The performance of your insurance (option selling) business will come down to two basic skills on your part:

  1. Your ability to select “policies” with the highest premiums and least chance of a “claim”
  2. Your ability to limit the size and scope of the “claims” you do pay

Edge in Trading

Higher risk policies mean higher premiums paid to you. Lower risk policies are safer, but offer lower premiums as well.

But there is advantage to be exploited. Up to 50% of these “policies” can be overpriced at any given time. That means they will pay you more premium than the actual risk warrants. Identifying which “policies” these are can potentially offer you an even bigger edge – one that real insurance companies don’t have.

You can lose too, of course. But selling options can be a more forgiving business for beginners than some others.

Your option selling portfolio functions more like a business than an investment.

for more information OptionSellers.com

 

That’s option selling – in a nutshell. Less like an investment, more like a business. It will correlate with nothing. Not even commodities indexes. Markets move up, down, sideways, Presidents come and go. Wars start and end. Civil disturbances flare, rate hikes or non hikes. And guess what? The insurance business moves steadily along.

The most profitable business is selling insurance. Needles to say that the best business for an option seller is to sell options and receive option premium. With choosing the right kind of options they have never to pay out premiums. Especially when you manage your trade early and close the trade if it receive 50% of it maximum profit.

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Originally posted 2016-09-19 13:54:44.

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