Selling Options

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

Selling option feature released!

Recently we have added a selling options before expiration feature to our mobile apps too, so now you can manage your trades on the go!

Let’s talk about how you can use it to manage the risks and return your investment in case of the wrong prediction.
This feature allows you to sell the option back on the conditions offered.

Cancelling and selling the option is not the same.

Deal cancellation means its full cancelation as per the purchase conditions. If you cancel the deal within the first 3 seconds after the option purchase, you receive the full amount of your investment back to your balance. Instantly. PLEASE NOTE: you can cancel the purchase ONLY if the chart has not changed since the purchase time.

Example: you buy an option with $1 and you can see the CANCEL button at the top right corner of your trading room. It will show you the time countdown so that you realize how many seconds you have left (2 seconds left in the example). If you press the CANCEL button, you will receive $1 back. That is the full investment refund.

All you need here is to be quick to decide.

Canceling the trade

Selling option back to us is available on certain conditions.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

If the asset price is moving in the direction, opposite to the one you predicted, the system will offer you to decrease your losses by closing the deal before the expiration time.

Selling option before expiration is available on both Turbo and Binary trading modes. It is not available on the OTC trading (weekend trading) though.

The selling rate is being calculated automatically. It takes into consideration the historical volatility, deviation of the current quote rate from the quote rate at the time of purchase, time left to the expiration.

Example: you invested $1 into the CALL trade. The asset price falls by 34% comparing with the purchase price. You can sell the option back for $0.34 (34% from your investment). Thus, you get $0.66 back to the account. Quite a saving! (please mind that the example is relative)

Selling the option back

Here is a short video on this gorgeos feature too:

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
In accordance with European Securities and Markets Authority’s (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.

GENERAL RISK WARNING

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
87% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Do the Buffett: How to Sell Puts Like Warren Buffett

In This Article

Maybe you’ve already dabbled in the world of options. Maybe options are an entirely new concept to you. No matter who you are, you can benefit from one of the most successful income options trading strategies.

Selling options for income is easier than you might think. It’s one of the few strategies where you can be wrong about the direction of the market and still win. Warren Buffett, one of the most successful investors of our time, actually uses this time-tested strategy to generate income.

While this strategy is easy to understand and execute, if you want to learn how to invest like Warren Buffett, you should spend some time learning the basics before you execute your first option trade.

[ DOWNLOAD: Wanna start trading ASAP? Get our free Option-to-Income Guidebook: Strategies of 7-Figure Option Traders today and start trading options in your spare time ]

Learn the Lingo: What is an Option?

Just think of the word option. In our everyday lives, an “option” is a choice. It works similarly when you’re talking about investments.

An option is a security. When you’re investing, an option gives you the opportunity to buy or sell a stock at a certain price on or before a specific date. Basically, you’re buying the option to buy or sell an underlying stock at a certain price.

There are two types of options: call options and put options. Depending on which you choose, you’ll have the right to either buy or sell an underlying stock at the set strike price.

Wait. Strike price? The strike price is the determined price that you can buy or sell the underlying stock for, regardless of how much the stocks appreciate or depreciate in value.

Call options allow you to buy shares of stock at a certain price. If you buy a call option, you are expecting that the underlying stock is going to increase in price. That way you can use your option to buy the stock at the lower “strike price” even though it’s worth more.

Put options allow you to sell shares of stock at a certain price. If you buy a put option, you’re expecting that the underlying stock is going to decrease in price. This way you can sell the stock at a higher “strike price” even though it is worth less.

But options don’t last forever. If they did, you could just wait for the market to turn in your favor. The date your option runs out is called the expiration date, and it could be days or years after you purchase the option. You need to exercise your option before or on this date, or else it will expire.

When you buy an option, the price you pay for that option is called the premium. Option contracts give the buyer the right to buy or sell 100 shares of the underlying stock. Therefore, when you calculate the cost for an option you need to multiply the premium price by 100.

Reading Option Contracts

When you first look at an option contract, it might be straightforward or it might be a little confusing.

You might get lucky and see this:

AAPL (Apple) is the ticker, 06/21/2020 is the expiration date, 210 is the strike price, and P stands for “put”.

Or you might need to decipher a code, like this:

If you see the latter, here’s how you read it: Ticker – Expiration date – Call or put – Strike price

This option lists the ticker—or underlying stock—as AAPL (Apple). The expiration date is ordered as year-month-day. For this option, the expiration date is 200619 (2020, June 19). The next is Put or Call, and in this case, it’s Put (P). Finally, the strike price is 0021000 ($210).

This means the buyer can sell Apple shares at $210 on or before June 21, 2020.

Remember, each option contract allows you to purchase or sell 100 shares.

Your AAPL200619P0021000 might trade at $20 per share. Because the premium is $20 per share and there are 100 shares, the overall cost is $2,000 = ($20 x 100)

Warren Buffet Uses Option Income Strategies

A put-selling strategy is one of the most effective options income strategies. The most famous investor in the world, Warren Buffett, uses a put-selling strategy. Buffett made huge sums in the wake of the 2008 financial crisis using options to generate income.

Instead of just buying a stock that he likes when it’s undervalued, Buffett sells options when the stock is overvalued. Selling overvalued puts allows Buffett to rake in large premiums from his buyers.

Buffett determines the value of an option based on implied volatility. Implied volatility measures the amount of fear and greed priced into an option. When implied volatility is high, option prices become overvalued. This attracts investors like Buffett.

So, how do you know when an option is overvalued?

One way to determine if implied volatility is high is to look at the VIX. The VIX is a volatility index created by the Chicago Board of Options Exchange. Implied volatility is high when the VIX is elevated. When the VIX is depressed, implied volatility is low.

Looking at a chart of the VIX can help you determine for yourself if implied volatility is high or low.

How to Invest Using this Simple Options Strategy

Trading options for income is a relatively simple strategy. Note: You should only execute this strategy if you’re ready to own the shares of underlying stock you’re buying the option for.

Let’s say Buffett is interested in buying shares of Apple. He would buy the shares if the price was $180, but share prices are currently selling at $222. He’s not going to buy for that price.

Instead, when volatility is high, Buffett would sell an Apple put with a strike price of $180 that expires in January 2021 for $12 a share.

If the price falls below $180, Buffett’s already established that he’s happy to purchase shares at $180. If the price is $180 or above on January 2021, Buffett will get to keep that $12 per share premium.

This means Apple could remain unchanged or even drop 19% ($42 per share = $222-180) and Buffett would still make money. The key to the strategy is that Buffett wants to own the shares when they’re less expensive, but he is also willing to receive income if the price does not drop to his entry level.

The best part of the strategy? It’s a win-win. Whether he buys the stocks at a reasonable price or keeps the premium from his buyer, he gets something he wants.

Risks: They Exist in Any Trading Strategy

Despite the simplicity of this strategy, it does come with risks. If the price of Apple tumbles below $180 per share, you’re still on the hook to buy it at $180. Since each option contract is 100-shares, your losses can add up if you aren’t careful. You need to set risk parameters when you sell options, just as you would with buying stocks. Understanding how much you stand to earn—and how much you could lose—will help you weigh out your risks.

When you sell a put, your payoff is straightforward:

If the strike price is $180 and the price drops below $180 per share on or before the expiration date, you must purchase the shares at $180. В

Your breakeven price is $168, which is the $180 strike price minus the premium you receive ($12 per share).  If the price of the option is above $168 at expiration, you’ll make money on the trade.

If the price of Apple never dips, the most you can gain on the trade is $12 per share.

How to Make Money Selling Puts

Selling puts allows you to set the strike price of a stock at what you would like to buy it for. Selling puts is even more attractive than selling covered calls, as you do not have to post the capital needed to purchase shares.

There are a few steps you should take before selling puts:

  • Find a stock that you actually want to buy
  • Decide on an entry price that you would be comfortable buying those shares for
  • Evaluate the implied volatility
  • Set your risk parameters

Once you have completed these steps you are ready to sell a put.

You Know Your Options

Selling puts allows you to win whether the market moves up, down, or sideways. There are some risks associated with options trading. However, if you trade options using specific strategies, they can be even less risky than trading stocks. В

According to the Chicago Board of Options Exchange, selling options is one of the few strategies that outperforms a buy and hold strategy over time. So what are you waiting for? Do the Buffett and sell some puts.

Cash Lambert is WealthFit’s Managing Editor. He is the author of Waves of Healing: How Surfing Changes the Lives of Children with Autism.

Beneficial Strategy of Selling Options on Futures and Commodities

Selling vs. Buying Options

Peter Dazeleyn / The Image Bank / Getty Images

Selling options can be an excellent trading strategy to help put the odds in your favor—if it’s done correctly. If you don’t manage your risk when you’re selling options, things can go bad in a hurry.

The Benefits of Option Selling

The most important benefit is that time is on your side.

Options have a limited life. That life ticks by every day and it means that options are always losing time value. Options buyers certainly know that dilemma. It’s a bad feeling when you pick the right market direction but you still have a losing trade due to the evaporation of time value on your options.

When you sell options, time decay allows you to make money on the trade even if the underlying market stays the same. You can also make money on a trade if the futures market moves against you because the option might not move enough to make up for the loss in time value.

Odds in Your Favor

It’s no secret that a majority of options expire worthlessly. That’s a simple fact, but it can help move the odds of trading in your favor and make your commodity trading a profitable experience. You can almost throw darts at a list of out-of-the-money futures options to pick your trades. Most of them will likely expire worthlessly, and that’s a 100% profit before commissions and fees when you sell them.

Unlimited Risk With Selling Options

Every trading strategy in commodities, futures, and options has its downside. An option-selling strategy entails virtually unlimited risk. If you sell a naked option—not covered or hedged—you run the risk of taking a huge loss. Options sellers often win on a high percentage of their trades, but they have a couple of losers now and again that are greater than all their wins. That’s why it’s so important to control your risk when you’re selling.

A trend-following trading system operates on a similar principle. Most of the profits for the year are made on one or two trades when the commodities make major moves. Most of the other trades are losses. Traders who use a system like this rely on a couple of trades to make their profits for the year. When you sell options, you want to make sure those couple of trades don’t turn into your big losses. You can generally do well in the commodities and futures markets by selling options if you’re able to manage your risk and sell out-of-the-money options without letting a few bad trades destroy your account.

Profit Potential vs. Risk

Options buyers have the luxury of unlimited profit potential. Options sellers can only make a 100% profit or the amount of the premium they receive minus commissions and fees. Many commodity traders like the benefit of unlimited profits. Most traders don’t have many trades where they make more than 100% anyway because they’re too quick to take profits. So, if you don’t make 100% plus returns on trades, and if you have a lower percentage of winners when you buy options, why wouldn’t you want to sell options rather than buy them?

Selling options is simply a matter of putting time and the odds in your favor. It’s up to you to avoid risking too much of your account on any one trade. You must cut your losses if the trades move too far against you. Just assume that two out of every three options you sell will expire worthlessly. You’ll keep your risk to 100% of the option premium on the losing trades. In the end, you should still come away profitable even if two out of three of your options expire worthless—which is about the industry average.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    Best Binary Options Broker!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Sign-up Bonus:

  • Binomo
    Binomo

    Good Choice For Experienced Traders!

Like this post? Please share to your friends:
Best Binary Options Trading Guide For Beginners
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: