Sunday, October 18, 2009

Option Selling Techniques

There are many different option selling techniques which you can use in order to make a decent return off of your investments. These techniques are:

1. Selling Naked Puts

When you sell a naked put you receive money up front but are risking buying the stock. For instance say you sell a $30 put, the stock drops to $28 you are obligated to buy the stock at $30. This means that you must have money in your account to buy the stock and be willing to hold onto the equity for a little while. Needless to say not everyone likes this strategy but it can bring in some extra cash flow.

2. Bull Put Spread

Like I said earlier selling naked puts is not for everyone. Many traders prefer the bull put spread over the last strategy. In this spread you not only sell a put, but you also buy another put at a lower strike price.

For instance say you not only sold the $30 put, but you also bought the $25 put. You use some of your profits on buying the second put, but the most you can lose now is $5, rather than $30. You also do not need as much cash to place a bull put spread as you would to sell a put.

3. Covered Calls

Another strategy you can do is to sell a covered call. This involves you owning a stock and selling someone else the right to buy it from you. For instance if you own 100 shares of XYZ stock and it is trading at $50 you can sell the $50 call, but in doing so you are obligated to sell your stock at $50 in the near future should the buyer of that option choose to exercise their right.

For more on selling puts and covered calls visit

For more on pull put spreads visit

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By Shaun Rosenberg


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