Selling options is an investment strategy that for decades was the exclusive domain of professional traders and fund managers.
Rather than try and guess which way a market is going to move and then try to time the buy or sell, Option Sellers simply pick a price level (above or below) the market that they feel the market cannot reach, sell an option at that level and collect a premium for doing so.
“As an option seller, you accept the fact that you, nor anyone else, can know for sure which direction prices will travel – especially in the short term. “
If you are already familiar with stock options, or if you have ever “sold a covered call”, you know the basic mechanics: You can sell an option as easily as buying one, or buying or selling a share of stock. Commodities options work the same way. But there are many differences between commodity and stock options. (To learn more about these differences and how to properly employ an option selling strategy, be sure to get your Free Guide to Selling Commodities Options.)
Below is an Example of a typical Option Sale you might employ as a commodities option seller.
Selling a January Soybean 840 Put Option – Collecting a $600 premium
Selling January Soybean 8.40 Put Option
Approx. 4 months
ANYWHERE above 8.40
You determine that the fundamentals for January Soybeans are somewhat bullish in August of 2016. While this could mean prices continuing higher, it might not. After all, who can determine when these fundamentals have been “priced in?” It could reverse, or simply level off. Therefore, instead of trying to buy soybeans and sell them at a higher price, you simply sell a deep out of the money put and collect a premium. This allows you to potentially profit from a variety of outcomes while avoiding the need to have perfect timing.
As an option seller, you accept the fact that you, nor anyone else can know for sure which direction prices will travel – especially in the short term.
Is this strategy without risk? Of course not. If the price of soybeans is below 8.40 at expiration, the trader could incur a loss. If the price of soybeans falls quickly during the life of the trade, the value of the option could temporarily increase. Short options, however, can be closed out at any time, thereby realizing either a profit or a loss on that position.
If you always thought employing a high percentage strategy like option selling required a PhD in mathematics, you were wrong. Our mission at OptionSellers.com is to bring the institutional grade strategy of option selling to the individual investor – who is often busy and pressed for time.
To learn more on how to put these advantages to work for you in the market, request your Free Copy of our Booklet for High Net Worth Investors – “The Option Selling Solution Now”.
* This is a hypothetical trade and is for example purposes only. No representation is made that this is/was the actual premium or actual margin in April of 2014 – nor does it represent that OptionSellers.com did or would recommend this trade to any client or is or was bullish the soybean market in April 2014.