- By: SHAUN ROSENBERG
Selling options during a volatile market has many advantages. It combines a higher probability with a high rate of return. There are 5 ways in which selling options in a volatile market can work out well.
1.Option premiums are often much higher when the markets are volatile. When stocks are bouncing back and forth without much happening it will lead people to panic. This panic leads to people buying options, which in turn makes option prices higher. Option selling is the perfect way to take advantage of times like this.
2.Because options are offering higher premiums you are able to sell farther out off the money then you normally would be able to. This allows you to gain a higher probability trade.
3.You do not have to predict which way the market is going. This is extremely hard to do when the markets are just bouncing back and forth. When you sell options you can sell as far out of the money while still collecting a decent return.
4.Selling far out of the money options leads to less stress during times of uncertainty. When the waters are rough buying stocks and options can be extremely stressful. During the same time selling far out of the money options can gain you comfort in the higher probability trades.
5.Option selling plays on both stock price and volatility. Therefore selling highly volatile options means the options will most likely lose value as the volatility goes down. Because of this you can often have the stock go against you and you still walk away with a profit.
The vast number of reasons to sell options makes them a great addition to any portfolio. They can offer high returns during all types of markets but are especially good during times of uncertainty.
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