Recently, I attended a seminar talking about making income through selling options. my friend has written a blog article summarizing the event. I agree with him that this kind of strategy is never as simple as it appears to be.
If you follow my blog, you know that I am often skeptical of the unrealistic simple and easy money making strategies promised by investment courses. One can never make consistent return by attending a 3 day course or buy a money making system. Investment requires hard work!
As a retail investor (professional investors are different), you just cannot sell weekly options every week and think you will make money. Take S&P500 ETF (SPY) for example, the volatility has fallen dramatically in the past 6 months, thus the premium is no longer great.
Last night, SPY closed at $137.73, say you take a not so safe position (trying to earn a high premium) to sell a naked Mar Week 2 Put with strike price of $135 (only 2 price away), your premium is merely $0.29/share. If you sell 1 contracts (100 shares), your premium collected is only $29 (before commission). However, take a look at the potential loss should market suddenly crashes.
|Price||Profit / Loss||ROM %|
You can make some money for a few month, but one trade can wipe you out if it is not managed properly. And managing risk has always been the weakest link of retail investors.