Josh's Option Selling Basics - Course 101

This is not financial advice, rather my own personal experiences documented. Follow me on X. My handle is @JoshTradeOption if you want to follow me, I share ideas from time to time. Selling option puts and covered calls are investment strategies that might sound complicated, but they’re pretty straightforward once you break them down into simple terms.

First things first:

1. Open a brokerage account if you don’t already (I like Fidelity)

2. Fund the account ($10K minimum, 25-50K is better)

3. Apply for options level 3 -The brokerage will ask you questions to apply. You’ll want to select the most aggressive strategy account time and also make sure you answer that you have 3-5 years experience (because I do and I’ll be posting the trades)

4. You can apply for margin, which will allow you to double your bu Options are financial contracts that give you the right, but not the obligation, to buy or sell a stock at a certain price (called the strike price) before a specific date.

There are two main types of options:

Basics on Selling Call Options and Put Options. Selling a Put Option When you sell a put option, you’re making a promise to buy a stock at a certain price if the buyer of the option wants to sell it to you. You’ll receive a payment (called a premium) upfront for making this promise.

Here’s How It Works:

1. Suppose you sell a put option on TSLA stock with a strike price of $357.50.

2. Someone pays you a premium (of $1.22 per share) for the option.

3. If the stock price stays above $357.50, the buyer won’t sell it to you, and you keep the premium as profit.

4. If the stock price drops below $357.50, the buyer can sell the stock to you at $357.50—even if it’s worth less. You’ll still keep the premium, but you’ll need to buy the stock at $357.50 per share.

Why Do It?

● You earn money from the premium, in this example I earned $122.00.

● You might want to own the stock anyway, and this is a way to potentially buy it at a lower price.

Covered Calls:

A covered call is when you own a stock and sell a call option on it. This means you’re agreeing to sell your stock at a specific price if the buyer of the option wants to buy it from you. In return, you get a premium.

Here’s How It Works:

1. You own 100 shares of TSLA stock, currently trading at $405 per share.

2. You sell a call option with a strike price of $425 and receive a $1.25 premium per share. 3. If the stock stays below $425, the buyer won’t buy your stock, and you keep the premium as extra income.

4. If the stock rises above $425, the buyer will purchase your stock at $425. You still keep the premium, but you’ll miss out on any gains above $425.

Why Do It?

● It’s a way to earn extra income from stocks you already own.

● If you’re okay selling the stock at the strike price, it’s a win-win.

Comparing the Two

● Selling Puts: You’re committing to buy a stock and earn a premium for taking that risk by selling a contract.

● Covered Calls: You’re committing to sell a stock you already own and earn a premium for that promise, by selling a contract. Key Risks and Rewards

● Rewards: The premiums you receive can add up over time and act as extra income.

● Risks: With puts, you might end up buying a stock that drops in value. With calls, you might have to sell a stock that continues to rise.

Key points: Delta- interpreted as the approximate probability that an option will expire in the money. For example, a call option with a delta of 0.3 has about a 30% chance of expiring in the money. Meaning you have a 70% chance of the trade going in your favor.

Theta: It tells you how much the option's value decreases for every day that passes. For example, if an option has a Theta of -0.05, it means the option's price will decrease by $0.05 every day, all else being equal. Theta is money, the further out in time the more a stock option is worth. Implied Volatility- The expected move in a stock +/-. The higher the volatility, the higher the premium and also potentially higher risk.

Final Takeaways-

● Sell Puts on Red Days (using cash as collateral)

● Sell Calls on Green Days (using your stock position as collateral)

● If you don’t have options Level 3 setup in your brokerage account, you’ll want to get that rolling so you can begin selling options.