Aditya Trivedi

Aditya Trivedi

28-05-2022

05:46

BENEFITS OF OPTION SELLING Most of the successful traders here are option sellers. Ever wondered why? Why we have chosen option selling? How to decide what strategies to use? THIS IS THE ONLY THREAD YOU'LL EVER NEED! Find out below

1: Theta decay The biggest reason and one of the prime reasons is the theta decay. Option sellers always have an advantage because the as time passes, the option premium falls even if the underlying instrument doesn't move.

2: Being wrong and still making money. We as option sellers can be wrong with our market view and still end up making money because of the power of theta decay and adjustments to some extent,

3:Playing directional view Option selling also enables us to take a directional view. Infact, directional view along with theta decay makes it a solid combination. Debit spreads and credit spreads works great for a directional view.

4: Playing Neutral view We can make money in option selling even if the market doesn't move as the otm options will go to 0 with the help of theta decay. It's the most fascinating thing.

This is what attracted many into option selling. Strangles, straddles, ironfly, iron condor works extremely well for playing out neutral view,

5: Lower transaction costs Option selling has extremely low transaction costs as compared to futures and other instruments. The STT which has to be paid in option selling is drastically low making it an excellent option for many.

6: Hedging Hedging is an excellent tool in option selling. It protects you from losses and also makes you more money than the original trade itself in some cases. Hedging also makes sure you stay in the trade and prevents you from being thrown out in small spikes.

7: Limited risk Usually naked option carries unlimited risk. But hedging your risk ensures limited risk on your positions. You can also deploy limited risk strategies which protects you from any big spike and also big gaps.

8: Trading volatility. Option trading is all about trading volatility. Option selling can be used to take advantage of rising and falling volatility.

Best strategy for rising volatility : Calendar spreads Best strategy for falling volatility : Strangles, straddles, iron condor, ironfly, butterfly.

9: Adjustments Adjustments is the heart of option selling. The ability to adjust your trades and coming out in profit even when your view goes wrong is one of the prime reason why option selling is amazing. Adjustments can be done in "n" number of ways as per one's style.

10: Lower margin compared to futures Option selling requires very low margin as compared to futures because of hedging. You can also make your option selling position behave like futures by going with itm options, although I personally don't recommend it to newbies.

11: Playing long/short/neutral view In option selling,you can play ALL directions If you're bullish you can play long, If you're bearish you can play short and if you think the market will be rangebound, you can deploy neutral strategies The flexibility it offers is unmatched!

12: Probability of profit Close to 80% of the options expire worthless. So the probability is always on your side. You don't have to be intelligent to make money. Only trade the most high probable setups and you're good to go.

13: Good for consistent returns. Option selling is an amazing tool for making consistent returns and compounding your money at a decent pace with least drawdown. You just have to make 2% a month.


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