Selling put option

 The best opportunity to own a growth stock is when the company’s share price is suffering a deep dip but fundamental unshaken. If we consider using wheel strategy by doing sell-put options using deep- OTM (Current price - 20%)  and setting a short-term expiration date(7- 60 days); collecting upfront premium while waiting share price drop below strike price assigned to buy the stock at the discounted price but if the stock price still above the price we can continue to restart sell put and collect upfront premium again.

How option price derived:

An option’s price (premium)= Intrinsic value + Time value (Extrinsic Value)

As a seller direction:

·       Extrinsic value= Theta (Time Value) + Implied Volatility

·       Strike price less than Stock price is Out-Of-The- Money (OTM) (No intrinsic value)

·       Sellers: Generate income from selling

Time value

Time value affect the premium of the option

Selling put options with zero intrinsic value, their value is solely based on Time value. These are referred to as Out-of-the-money options. The further the expiration date the more time value. Time value decay (Theta), time is the friend of option sellers. Time decay speeds up in the last 30 days before expiration. At-the-money options experience the fastest time decay, while in-the-money and out-of-the-money options decay more slowly

Type of relationship on assignment:

·       Choose OTM if don’t want to be assigned

·       Choose DEEP OTM if you want collect income and confident owning good stock

·       Don’t care about assignment if part wheel system choose ATM

·       Want to be assigned choose ITM

Implied Volatility (IV)

Implied volatility is the valuation of an option, IV represents the market’s expectations of future volatility which directly determines how highs or low the time value is’ IV directly affects an option’s price

High IV: High Premium for sellers

Historical Volatility (HV)

Is the past 30 days average

 

IV/HV

We can compare IV to HV to gauge the stock blooming 

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