If you're buying options, you're essentially placing a bet on the movement of a stock or ETF. If your prediction is right, you can make a decent profit, but if the trade doesn’t go your way before the option expires, you could be looking at a 100% loss. That’s a lot of risk.
In this post, I’ll explain why my approach to options trading—selling options rather than buying them—allows me to make consistent money while reducing my exposure to risk. I’ll also give you some insights into how I manage my trades, ensuring that I profit regardless of market conditions.
The Risk of Buying Options
Buying options might seem appealing, especially with the potential for a big win, but it comes with significant risk. When you buy an option, you’re speculating on whether a stock or ETF will move in a specific direction within a certain timeframe. If it doesn’t, your option expires worthless, and you're left with a 100% loss on the premium you paid for the contract.
Even experienced traders can find it difficult to predict short-term stock movements. This means, as a buyer, you're often fighting against both time and the market. Sure, you can try to manage risk by setting stop-loss orders or constructing spreads that limit your total loss, but at the end of the day, if the market doesn’t move in your favor, you’re likely to lose money.
Why I Don’t Buy Options—I Sell Them
What if there was another way to approach options trading—one where the odds were stacked in your favor? Instead of buying options, I sell them. When I sell options, the premium I receive goes directly into my account upfront. No matter what happens next, that money is mine to keep.
And, hey, if you’re buying options, there’s a good chance you’ve been on the other side of one of my trades. That money you spent buying the contract? Well, it’s now in my account. And for that, I thank you! (Don’t worry, I’m putting it to good use.)
While option buyers face the constant pressure of predicting price movements, option sellers like me have a much more relaxed role. Instead of betting on how the stock will move, I structure my trades to benefit me no matter which way the market turns. Here's how I do it.
How I Structure My Options Trades
When selling options, I focus on two main strategies: selling cash-secured puts and covered calls. These strategies allow me to earn consistent income while maintaining control over the risk. Let me walk you through each one.
Selling Cash-Secured Puts
When I sell a cash-secured put, I’m agreeing to buy a stock or ETF at a specific price (the strike price) if the buyer of the option exercises the contract. I make sure to keep enough cash in my account to buy the shares if I get assigned, which is what makes it "cash-secured."
Why is this strategy lower-risk? Because I only sell puts on stocks or ETFs I’m happy to own. If the stock’s price drops below my chosen strike price and I get assigned, I’ll end up buying the shares at a price I’ve already decided is acceptable. Meanwhile, I’ve already pocketed the premium, which reduces my effective purchase price.
Want to see exactly how this strategy works in real-time? Check out my Udemy course on selling cash-secured puts, where I walk you through the process, step-by-step, using real trades. You’ll learn how to set up your trades, what to look for in a stock, and how to manage your positions over time.
Selling Covered Calls
The other strategy I use is selling covered calls. This involves selling call options on shares of stock or an ETF that I already own. In this case, I agree to sell my shares at a specific price (the strike price) if the buyer exercises the option.
The best part? As long as the stock stays below the strike price, the option will expire worthless, and I get to keep both the shares and the premium. This works particularly well when I expect the stock to trade within a certain range for a while, giving me the chance to collect premium after premium.
If the stock rises above the strike price and the contract gets assigned, I’ll have to sell my shares—but at a price I’ve already agreed on, which will still leave me with a profit.
Interested in learning how to set up your own covered call trades? My Udemy course on selling covered calls will guide you through the process, showing you how to choose the right strike prices, manage risk, and optimize your returns.
Managing Risk by Selling Options
One of the key advantages of selling options is that you can structure your trades to manage risk in a way that suits your personal strategy. Here’s how I do it:
Choose Quality Stocks and ETFs:I focus on trading options on stocks and ETFs that I’m comfortable owning long-term. This means I’m not just trading based on short-term price movements, but I’m investing in assets that I believe have long-term value. If I get assigned, I’m happy to hold onto the stock until the market turns in my favor.
Use Cash and Collateral:I don’t trade on margin. Every time I sell a cash-secured put or a covered call, I ensure that I have enough cash or stock in my account to fulfill my side of the contract if it gets assigned. This way, I never have to scramble to find funds or take on unnecessary debt.
Roll Trades When Necessary:If a trade doesn’t go my way—let’s say the stock moves closer to the strike price and it looks like the contract might be assigned—I can always roll the trade. Rolling involves closing out the existing option and opening a new one with a later expiration date. This allows me to buy more time and collect more premium, further reducing my risk.
When you sell options, you have the flexibility to adjust your strategy as market conditions change. This makes it easier to generate consistent income over time, even in unpredictable markets.
Why Selling Options Beats Buying
As an option buyer, your profit depends entirely on predicting short-term price movements—something even the best traders struggle with. But as an option seller, you’re in a much more favorable position. You get paid upfront, and as long as you structure your trades properly, you can earn money no matter what happens in the market.
Additionally, you’re not betting on wild market swings or relying on perfect timing. Instead, you’re generating income from the natural decay in option prices. As the expiration date approaches, the value of the option decreases—this is known as time decay. For option sellers, time decay is a profit engine. The closer the contract gets to expiration without hitting the strike price, the more money you stand to make.
If this sounds like a strategy you’d like to learn more about, my ebook, The Novice Investor’s Guide to Stocks, Funds, and Options, Second Edition, offers a comprehensive breakdown of how to implement these strategies. In it, I cover everything from the basics of options trading to advanced strategies for managing risk and maximizing returns. Whether you’re new to options or looking to refine your skills, you’ll find actionable insights that can help you succeed.
Save Time, Avoid Costly Mistakes
When I was first starting out, I spent years scouring the internet, piecing together bits of information on options trading. I made plenty of mistakes along the way—some costly ones that I wish I could’ve avoided. That’s why I created my Udemy courses and wrote my ebook—to save you time and help you avoid those same mistakes.
In my content, I share the strategies I use daily to generate income from selling options, all while managing risk and keeping my portfolio secure. Instead of spending years trying to figure it all out on your own, you can follow a proven, step-by-step guide that will give you the tools to start trading smarter, faster.
Conclusion: Start Trading Smarter Today
Selling options is a powerful way to generate consistent income, even in volatile markets. By focusing on quality stocks, managing your risk, and leveraging time decay, you can turn the odds in your favor and build a strategy that works for you.
If you’re ready to start trading options with confidence, check out my Udemy courses for novice investors and on selling cash-secured puts and selling covered calls, grab a copy of my ebook, The Novice Investor's Guide to Stocks, Funds, and Options, or set up a 1:1 meeting to discuss your personal investing goals. Let's fill in the gaps in your knowledge and dive deeper into the strategies we’ve covered today.
Let’s start trading smarter—together.
