Option Selling as a Business

  1. Many thanks for the insightful video.

  2. Michael

    With regards to the risk management / 200% rule. If you you had an iron condor inplace and one leg was threatened. Do you wait for that leg to be at 200% or is it for the entire premium received to be at 200%.

    If one leg is threatened can you roll down the non-threatened leg slowly to bring in additional premium to minimise the threatened leg loss ?

    • Michael Gross Says:
      April 4, 2017 at 2:07 pm

      Hello Greg,

      In regard to the 200% rule, you could do either. Exiting the leg at 200% is a more conservative approach. Exiting at entire premium is a bit more aggressive, but also ups the odds you come out ahead (its less likely the reach double premium of the whole spread.)

      As far as rolling the profitable leg down, again, that is one possible strategy. I would consider that to be more aggressive however, as markets that take a hard turn one way often have the tendency to bounce. Fundamentals play a big role here. The current fundamental and seasonal read would have to dictate the proper risk aversion measure.

      Thanks,
      Michael

  3. David Madeksho Says:
    March 30, 2017 at 4:53 am

    Michael,

    Always enjoy your knowledgeable and insightful commentaries!
    Question: Statistically, and/or in your opinion, which option strategy is typically better to sell, a strangle or a very wide-winged iron condor, and why?
    I have a $200,000 trading account, if that makes a difference.

    David M.
    Memphis, TN

    • Michael Gross Says:
      March 30, 2017 at 4:53 pm

      Dear David,

      I wouldn’t say one is “better” than the other. They both have advantages. Typically a strait up strangle is less cumbersome and you can often realize profits faster. A condor however, offers the extra layer of protection that many investors value.

      All things being equal, I’d prefer to write the condor. But condor’s are not always available – at least with spreads that make them viable. This makes the strangle the next best bet.

      I hope that helps.

      Thanks
      Michael

  4. Robert,

    If you sell an option for 800 dollars and the price of the underlying goes TOWARDS your strike price the option you sold will increase in value and will be more expensive to buy back (close)

    Example- let’s say you sell a July 40 PUT in crude for 800 bucks and crude goes down that 40 put will go UP in value. When the value is at 1600 (because crude keeps dropping) you would close your option by purchasing it back at 1600 leaving you an 800 dollar loss.

  5. Robert Wilhelm Says:
    March 21, 2017 at 7:47 pm

    In regard to the 200% rule; how can an option that I sell for 800.00 become 1600. It seems that the sold option of 800.00 will become banked when the option expires and I then get to keep the full 800 or 100% of the premium.

    • Michael Gross Says:
      March 22, 2017 at 4:11 pm

      Robert,

      When you sell an option, you want it to go to zero value and expire worthless – as you described. If, however, the market makes a sharp move against your position, the option could increase in value – putting you at a “paper” loss. The 200% rule says you should cut that loss (making it a realized loss) when it reaches 200% of your original premium.

      For more information on this, I recommend watching our risk management video on the “video lesson” page of our website.

      I hope that helps.

      Regards,
      Michael

    • Robert,

      I think you’re probably clear on this now, but I think I see what you were thinking.

      The $800 you sold the option is the MAXIMUM you can GAIN from the sale. However, your LOSS can be much greater than that. The 200% rule only applies to LOSING positions.

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