Why sell an option?

Options can be sold for several reasons. A put option can be sold to target a price to enter a stock. A call option can be sold to target a price to sell a stock. Say you own ABC stock at $25 per share and are willing to sell it for $30. You may be able to sell a $30 strike call option for $1. If ABC is below $30 at the expiration date, you keep the stock and the premium received for the option. If ABC is above $30 you have committed to selling it for $30 plus you retain the $1 option premium so your total price received is $31. Sell calls to produce income can be a very good strategy. For example, say ABC stays in a range between $25 and $30 for an extended period, you can continue to sell the $30 option and collect income each and every month.

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About sellacalloption

Portfolio manager and chief option strategist for Fusion Asset Management. Professional option trader with VTrader Pro, LLC.

Posted on July 17, 2011, in Option Basics. Bookmark the permalink. Leave a comment.

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