Selling Options > Buying Options

Selling options is the core to the majority of our strategies and recommendations. The reason is that being short options is one of the only known – and justified – edges in the market. Many will dispute that, but if option sellers were not compensated for the financial insurance they are providing to the market – then why would they ever write new contracts? There is always a cost for insurance, that is above and beyond the real risk insured. This difference is the profit for the insurance company – it’s called a premium for a reason. If insurance companies weren’t profitable, could they exist – and would they ever write new policies?

Would you rather be the casino, or the gambler? This is why selling options is better than buying options. If you aren’t quite a believer yet, here are 18 more reasons why selling options is the key to consistent success as an options trader.

1. Option selling has a higher probability of profit. The vast majority of options expire worthless. Sell high, buy back… never? Its worthless just let it vanish from your account.
2. You get paid up front cash for selling options right when it fills. Win or lose, you get all your potential gains now – not when you close. You can reinvest that elsewhere and let your original position work. This is leverage to dial up your risk / reward.
3. Option selling represents the null hypothesis. Some trader out there is making a bet that some stock will go somewhere by some time – they need direction, time and magnitude to all be right. Sellers win if any do not happen. Buyers need 1,2,3 sellers need 0.
4. Option sellers can profit when stocks move up, down or sideways. You can be wrong directionally, and still turn a profit – something that is impossible for option or equity holders (excluding dividends). Trading is easier when you win even when you’re wrong.
5. Every passing moment you are being paid to hold short out-of-the-money options. You get paid for patience – not paying for urgency (option buying). Make money while you sleep. Selling options is not unrealized cap gains, but real cash deposited into your account.
6. Time is on your side as theta decays the extrinsic value of all OTM options to zero. You don’t need to always be present, catch the market open, or watch futures – there is no sense of urgency or panic. Time is a tailwind for your PNL not a headwind you must overcome.
7. Your risk and reward are defined in advance – before the trade fills. This allows you to make more probabilistic, mechanical trades. Traders can dial in their exact risk/reward trade off and manage expectations – like a casino. Rinse and repeat.
8. No one knows where the market is going in the future – but with option selling, you know the trade’s future outcomes and attributes with certainty. The ability to eliminate these variables in your trading allows you to focus on the variables that matter – your alpha.
9. Option selling works in all market conditions. Some conditions are more favorable than others – but there are always trading opportunities for individual equities every earnings report and for meaningful macro news events.
10. Earn a cash income, even with small accounts, by selling options. Selling produces cash that can be withdrawn and consumed. These income streams can compound daily, weekly, monthly – and scaled/started/stopped at will. What other “business” or investment offers that?
11. Option selling can supplement an existing portfolio of equities – by adding risk and adding income. Sell calls for income on long shares, sell puts for income when short shares. Both strategies layer in immediate cash flow to improve gains.
12. Lower your cost basis on equity positions by selling puts at your price target. If you want stock ABC for $10 but it is trading at $11, sell the 10 strike put forever, until assigned. You get the stock at the price you want, are paid to wait, and keep the cash premiums.
13. Myth: “Option selling is complicated and requires knowledge and experience” – if you are already buying calls and puts, selling is just being on the other side of the trade – and inversing yourself. A few trades as a seller, you will never buy options again.
14. Myth: “Option selling requires a lot of capital.” This is false – tell Robinhood you are experienced, have good income, and deposit $100. They will give you L3 options if you ask for it properly. Sell a one dollar wide credit spread and you are in business.
15. Myth: “Option selling is way more risky.” Compared to what? You get paid for taking risk in the markets – so measure “risk adjusted returns.” Yes, you can blow up your account selling options – but only if you’re reckless. Avoiding it is easy if you know how.
16. Myth: “Option selling is picking up pennies in front of a steam roller.” Choose how much money, what size steam roller, how long until it hits. You see it coming and can just move? Might lose a leg, but you can grow it back. You never lost a leg buying options?
17. Myth: “You have to hold until expiration.” Incorrect – you can close at anytime. Future outcomes might be discussed in the context of “at expiration” but you can close whenever there is a liquid market. If you don’t like the trade, bail and redeploy your capital.
18. Myth: “Risk 5x to make 1x – is a bad trade” You sure? What if you profit 90% of the time? A good trade has a positive expected value. Would you rather be the lottery or the person playing it? Exactly. Risk to reward ratio means nothing without probability of profit.