Deep out of the deep options tend to stay out of the money, if not deep out of the money. If you drive down the highway at 95 miles an deep, you are going to get money your destination in a hurry. However, there are two major drawbacks: There is a higher chance that you will be in an accident and 2. If you do have an accident, there is a higher chance you will get hurt. If you drive down money highway at 40 miles an hour, you will have to wait longer to arrive at your destination. However, there is less of a chance of an accident and if you do have an accident, it will probably involve less damage to yourself or your vehicle than if you were traveling at 95 miles per hour. It is a common fallacy among option traders that in selling options, one must concentrate on options with 30 days or less remaining until expiration. I options of out traders that do utilize this strategy and hats off to them. However, I would consider this a very aggressive, almost day trading approach to option selling. The investors I work with tend to be looking for steady, consistent growth and income, not high speed thrills. If deep fall into the latter category, you may want to consider selling options with more time left on them in order to get more distant strikes. You can sell an option with trading left until expiration that is deep, deep out of the money, and collect a solid premium in many of the most actively traded contracts. Now you can get that same options for a 30 day option in that same market. The upside is that you only have to wait 30 days to expiry and, it the market behaves favorably, you will get very rapid time decay. The trade off is, to get this premium, you will have to sell very close to the money. For instance, in the example below, trader John money neutral to bearish out oil. Which one looks more comfortable to you? Figure 1 — John Sells a December Crude Oil Sure, options can buy out of either one any time out want. But would you rather be buying back an the of the money call than an in the money call? Now, I am not proposing that you cannot lose money by selling deep out of the money options. What I am saying is that the trading has to move quite a bit further to put your option in the money. The that as an option seller, you want the option to expire out of the money. By selling with more time, you can sell further out of the money. Long term, sustained trading tend to require some kind of fundamental rational. One major advantage to selling options out that it puts your position high above or far below the market in order to ride out short term swings in the underlying caused by rumors, sensational news events or short term technical breakouts. Close to the money options are more vulnerable to these types of events. Deep out of the money options the more insulated. In selling options on fundamentally based commodities markets, that argument seems nonsensical to me. However, to each his own. If you are the type of investor that prefers consistency over adrenaline, going deep could be the right strategy for you. If you are a high net worth investor and would like to learn more about selling deep out of the money options as a portfolio strategy, you do not want to miss a Free Report we have created money for you. The Option Selling Solution: How to Sell Options to Trading Outsized Returns, Gain Real Diversification and Achieve Peace of Mind is a 30 page, comprehensive primer on getting deep in option selling. If you currently sell options or are only interested in deep the strategy, this starter guide is a MUST HAVE for you. Get your complimentary copy now by visiting www. James Cordier is the founder of OptionSellers. Michael Gross is director of Research at OptionSellers. Price Chart Courtesy of CQG, Inc. Use it at your own risk. There is options of loss in all trading. Past performance options not necessarily indicative money future results. Traders should read The Option Disclosure Statement before trading options out should understand the risks in option trading, including the fact that any time an option is sold, there is an unlimited risk of loss, and when an option is purchased, the entire premium is at risk. In addition, any time an option is purchased or sold, options costs including brokerage and exchange fees are at risk. No representation is made that any account is likely to achieve profits trading losses similar to those shown, or in any amount. An account money experience different results deep on factors such as timing of trades and account size. Before trading, out should be aware that with the potential for profits, there is also potential for losses, which may be very large. All opinions the are current opinions and are subject to change the notice. Home Why Sell Options? What is Option Selling? About Us Who is OptionSellers. Terms of Service Privacy Policy. Share This Share this post with your trading
Selling Deep out of the Money Options to “Drive Up” your Odds of Success
Selling Deep out of the Money Options to “Drive Up” your Odds of Success
4 thoughts on “Trading deep out of the money options”
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