How to find option trades
Find a stock with an upcoming event
See if the options (on a date near the event) has a) HIGH VOLUME (compared to open interest) and b) High Implied Volatility
See examples of High Options Volume compared to open interest below
That’s what you need in the option.
High Implied Volatility means that the price fluctuates a lot – which increases the amount of UPSIDE, when writing calls (or puts). Low implied volatility means the stock price stays around the average more often.
Strategy – At Expiration, the market price can be one of 4 things.
Below your average price – No Loss. Profit = Premium
Above your Average price but Below the strike price – No Loss, Profit = Premium
Between the strike price + option premium price – No Loss. Even if exercised, we still made the option premium.
Above the strike price + option premium price –> Result- No Loss, but we just limited the amount of profit, by selling our underlying stock too early.
Summary – Regardless of the market price, you make your option premium.
The only ‘loss’ is the loss of additional profit, IF the price exceeds Strike Price + Premium Price
Anuj holds professional certifications in Google Cloud, AWS as well as certifications in Docker and App Performance Tools such as New Relic. He specializes in Cloud Security, Data Encryption and Container Technologies.
Anuj Varma – who has written 1216 posts on Anuj Varma, Hands-On Technology Architect, Clean Air Activist.
Leave a Reply