Selling Deep out of the Money Options to “Drive Up” your Odds of Success

Watch OptionSellers.com's Michael Gross on Selling Deep out of the Money Options Read the full article here: http://www.optionsellers.com/going-deep-selling-deep-out-of-the-money-options-to-drive-up-your-odds-of-success/ Picture yourself driving a car. If you drive down the highway at 95 miles an hour, you are going to get to your destination in a hurry. However, there are two major drawbacks: 1. 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 the 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. The same holds true for selling options. 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. The logic goes that as this is when options experience the fastest rate of time decay, why not only sell “short time” options and get the fastest time decay (and thus profits) possible? The value of an option is made up of three main components 1) Volatility 2) Time remaining until expiration 3) How close the strike is to the price of the underlying market You can sell an option with 3-5 months 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 premium 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.

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