I attended a seminar yesterday where the speaker spoke about how we can make money from options.
Since the majority of options expire worthless, he would rather be a seller than buyer of options.
After a long session introducing the concept of options, calls, puts, strike price, premium, in-the-money, at-the-money, out-of-money, the speaker revealed that his strategy involved the selling of weekly options which could generate a potential income of 2-5% every week month.
And he used only three stocks, the names of which would be revealed if we signed up for his course. 😀
The speaker said that weekly options were a Godsend as you could now get income every week instead of every month (with monthly options). Weekly options would start trading on the Thursday the week before it expired.
The speaker also mentioned a few other reasonable rules, such as setting a cut loss level, never trading around major events such as price earnings reporting, and only initiating the position from Tuesday onwards (and not over the weekend) to minimize the risks.
At the end the session, there were many questions from the audience, many of whom were intrigued enough to want to consider signing up for his course.
I just want to highlight that such a strategy of selling options without owning the underlying shares (otherwise known as naked selling) is a risky one and should only be attempted by advanced traders with a proper risk management system in place.
The trade might look deceptively easy and you might be able to get away with getting income week after week for a long time. But if you do not consider factors like the volatility, the delta and the gamma, you might be getting underpaid for selling the options and when the trade goes against you (matter of when and not if), the losses might wipe out all the income you have made so far.
So, trade with care. 🙂
On a side note, my friend was asking me whether there were weekly options on Berkshire. It so happened that Berkshire weekly options were available since a few weeks ago. However, the trade volume on them were quite low compared to other companies out there.