Passive Income by Selling Options (Easiest Way To Profit) #Finance

everyone wants free money and in today’s CashNews.co i’m going to show you what i consider to be the closest thing to free money in the Stock Market and that is by selling options now look i know you might be skeptical and so was i before i learned the strategy

but by the time you finish watching this CashNews.co you’ll have everything that you need to start making passive Income right away ladies and gentlemen welcome back to pandrea text-decoration: none;">Finance my name is alex pandrea and in today’s CashNews.co i’m going to show you my strategy for selling options for passive Income how i enter trades which strike prices i choose and more importantly how i close out of my trades to

continuously collect that Income on a weekly or monthly basis now at the end of this CashNews.co i am going to share with you my exact step-by-step game plan that i follow whenever i sell options so if you’re ready then so am i let’s just jump into it the first thing

that you need to understand is the difference between buying options and selling options and what our goal is for each now i know you might know the general difference but there is one specific piece of information that we must understand before making any trades and that is that buying and selling

options are opposites wow great observation there alex all right all right just hear me out because this is important for the overall strategy when you buy options you pay a premium for that option when you sell options you’re collecting a premium the money goes from the buyer of the option

to the seller of the option since both the buyer and seller are betting on the same option only one can win the trade as in the option could either expire in the money or out of the money the buyer is hoping that the option expires in the money and the seller is betting that the option expires out

of the money this is in essence the ultimate goal of buying and selling options and you make Profit along the way as that goal becomes a reality in the Markets but

here’s the interesting part the percentages of winners between buyers of options and sellers are not equal the reason for this is that ninety percent of the out of the money options expire worthless now this statistic doesn’t take into account things like closing the options early

taking Profits along the way exercising the options but nevertheless the point is you have a way higher percentage of winning your trades if you are on the side of selling options rather than buying options because well math so if you’ve always tried buying options and you

see you’re losing money well that premium that you paid goes to the option seller who’s just collecting that free money basically and laughing all the way to the bank Accounting is all right let’s jump into the option chain and take a look at an example

we’re gonna go ahead and take a look at facebook or as it’s now known meta platforms we’re gonna go ahead click trade and trade options and let’s go about a month or so out so i’m gonna choose expiration date of december 17th and make sure you’re on sell and call

at the top you’ll notice that the closest at the money strike price the 345 calls has a 69 chance of Profit in other words it has a 69 chance of expiring out of the money remember that is what we want when we’re selling options and 69 is good but we can do a little bit

better so let’s scroll up a little bit and let’s go to the 365 calls which have an 80 chance of expiring out of the money this translates to 8 out of 10 times you will win this trade if you sell this option this also means that if you are on the other side of this trade buying the

option you will only win 2 out of 10 times or 20 which is the opposite of 80 now robin hood is sneaky because they don’t give you the percentage when you click on buy and call if you notice over here so if we switch it to buy and call you’ll see that instead of the percentage of

Profit you’ll get the to break even price because let’s be honest if people see that they only have a 10 to 20 chance of winning the trade then people might wise up and realize they’re just throwing money away but for you guys if you want to know the percentage

just know it’s the opposite of what the sell call percentage shows so the key takeaways from this first section are as follows when selling options you want the option to expire out of the money second the majority of out of the money options expire worthless so the math is in our favor when

selling options and third you have the percentage of winning that trade clearly listed on your Brokerage for selling options so you know mathematically your chance of success and all of this is great because it takes the guesswork out of options and trading we’re going to

follow the numbers follow the percentage and we will be successful moving on to the second part of this strategy the different ways that you can make money selling options selling options can be broken up into two categories basically selling puts and selling calls and of course there’s a

combination of these two with spreads and iron condors and fancy stuff like that but basically you’re either selling a call or you’re selling a put so let’s go over what it means for each of these categories selling puts selling puts gives the seller the obligation to purchase

stock at a given strike price if that option expires in the money and the option is exercised if we want to sell options for Income we do not want our stock price to drop below our strike price if that happens we may be forced to buy 100 Shares of the company for

every one option contract we sold we must have collateral in the form of cash to cover our position in case we are forced to buy the stock if the stock price does not drop below our strike price then we get to collect the entire premium selling calls selling calls gives the seller the obligation to

sell stock at a given strike price if that option expires in the money and the option is exercised if we want to sell calls for Income we do not want our stock price to exceed our strike price if that happens we may be forced to sell 100 Shares of the company for

every one option contract that we sold to cover our position we must have collateral in the form of Shares 100 Shares for each option contract if the stock price does not exceed the strike price by expiration then we get to keep the entire premium so to summarize

the process of selling calls and puts the first thing that you do is make sure that you have collateral necessary to start selling options okay so you have the collateral good then you have to pick an option you want to sell and well sell it once you sell the option you can collect the premium to

ching and that money is then put into your account right away that money is now yours to do with what you want but keep in mind that you’ll need to close out your position by buying back that contract at some point the best case scenario is of course the option will expire worthless as in the

premium is now zero dollars and you don’t have to buy it back anymore but in a lot of cases you might have the option be worth pennies so not quite zero and you don’t want to wait until expiration so you’ll decide to buy back that option at a lower price than what you sold it for

and keep the difference in Profit remember when buying options we want to buy low and sell high right but when selling options we want to do the opposite sell high and then buy low so our ultimate goal when selling options should be to get the most amount of premium possible for

that option and then watch that option decrease in value as that option decreases in value that means that you will end up keeping more and more of that premium that you collected at the start once you close your position you can go ahead and put a new trade on and do this over and over collecting

premium each week each month and he’ll be the one this time laughing and also laughing at your past self who used to buy options never making any money okay now putting it all together let’s take a look back at the option chain and see how much money we can really make selling options

before we do it’s important to keep one thing in mind and to understand that this is a percentage game and the money that you’re going to make is going to be in percentage terms relative to how much collateral you have to put up so we always want to take a look at the return on

collateral to determine if a trade is a good trade or you can live without it typically i look to make around two three four percent per month on the money that i have as collateral for selling puts calls spreads all that kind of stuff and from my personal experience it usually averages to around

two percent return per month overall which i think is a great return remember the average Stock Market return is 10 per year so if we can beat that overall by making the average of 2 monthly as consistent as possible what more can you ask for now look if you’re here thinking

that you can just double your money overnight or have unrealistic expectations of your returns in this market then i hate to be the one to tell you this but it just isn’t realistic especially at the win rates that we’re going to have one selling options of course you can make much

higher returns by taking way more risk but then you are not having a disciplined strategy that can consistently make you gains so if you want to do things correctly and safely without losing all your money then in my opinion shoot for two percent per month and i think overall in the long run

it’ll be a much wiser decision for our first example let’s take a look at gaap we’re going to hit trade trade options and go about a month out so let’s say let’s choose december 17th and make sure you’re on what you want to sell so sell call or sell put now for

me i don’t own 100 Shares of gaap but i do have cash so we’re going to be selling puts so make sure you click sell put and we’re going to go down to let’s say the 22 put which has a 76 chance of Profit we’re gonna go ahead and click on

the option and enter one contract and you’ll see that we’re going to get a minimum Credit of 72 dollars and then if we hit review it’ll show you the collateral that you have to put up to receive the seventy two dollars in this case it’s two thousand two

hundred dollars that you have to put up as collateral in cash for that seventy two dollars to be put into your account and if we do the math on it seventy two dollars is about a three point five percent return on your collateral which in the context of an individual trade is very good so

you’re gonna put up the money grab 3.5 percent try to collect as much premium out of that as possible if the option decreases in value you can buy it back and hopefully end up with an average of a two percent return second example let’s go to mgm resorts hit trade trade options and

again we’re gonna use the same expiration date of december 17th and let’s check out what we have for sell and put make sure all the time that you’re on the right thing on the top because the last thing that you want to do is buy the option instead of selling it that would be

we’re going to go down on the option chain after we click sell put we’re going to go down to about the 47 put and you can see that we have a 74 chance of Profit so we’re going to click on that option and we’re going to enter one contract and we see that we

get a minimum Credit the premium that we receive of 129 now if we click review you’ll see that we’ll have the post collateral of 4 700 and 129 of 4 700 and percentage term is about a 2.5 something like that between 2.5 and 3 return not as good as the gap premium return

but still pretty good now of course this goes to show you that different stocks have different option premiums some premiums may be higher based off of implied volatility and other factors if you want to learn more about this and more in depth you can click on this CashNews.co here that explains

further about option premiums so you know what to look for when choosing an option with a lot of premium baked into it speaking of volatile stocks let’s take a look at the third example amc let’s go trade trade options hit the same expiration date december 17th make sure you’re on

sell and put again if you have cash sell put if you have the stock itself and you want to sell covered calls you sell calls let’s scroll down in the option chain to let’s get a good percentage the 31 dollar put has a 75 chance of expiring out of the money so you have a pretty good

chance of winning this trade we’re gonna go and click it and hit one contract and you’ll see that you’ll get a minimum Credit of two hundred and one dollars and if we hit review you have to post collateral of thirty one hundred dollars now the return on this trade

will be about 6.5 off of your collateral which is a very good return and that’s because the premium on a stock like amc is very high so you collect a lot of premium you let the value drain out of it and you collect more than you would let’s say with the first two examples now you can

see that an important trait in selling options is slow and steady you are not looking to make huge gains and you won’t be screenshotting your returns anytime soon to post them on wall street bets i’m afraid but what the strategy does allow you to do is mathematically guarantee a

percentage return to some degree and make a steady Income off of the Capital and the collateral that you have without putting it at a lot of risk like you might do with other Investments now of course when starting out with a small account

you’re going to be making a small percentage on an already small amount and it might not seem like a lot to begin with but just like any good compound investment it grows over time so the goal is to collect premiums slowly but surely add that premium to your Capital and then

the next time you make a two percent return that dollar amount would be higher because you’re making that return on a higher amount and that’s no balls on and on and that is how i started see for me i have a separate long-term account that i sell options in so i do a combination of

selling covered calls on the stock that i own selling puts on the cash that i have and different things like fancy iron condors and spreads and i grew that account to now about one million dollars and like i said i can average about two percent monthly selling options which is about five thousand

dollars per week give or take again some weeks or higher some weeks are lower sometimes when a trade is going against me i might just close it out so i don’t get assigned or have to buy Shares but on average this is how i make passive Income on my long-term

stock Portfolio now look i don’t do this to show off my gains to you because in all honesty two percent might not even be impressive to some of you out there but rather to show you that eventually when your Portfolio is at a decent size you can start making

really good Income just by selling options and it sure beats a four percent return a year on your dividend stocks if you’re one of those dividend investors now here comes the most important part of selling options and that’s closing the position and buying back the

option for Profit now as you know our ideal scenario is to have the option expire worthless at expiration this way we collect 100 of that premium but is that really the ideal scenario well let’s think about this for a second let’s say you sell an option expiring one

month out and you collect the full premium boom it’s in your account right away now you want to hold on to that premium and not have to give it back that’s the ultimate goal but let’s say next week that option loses 50 of its value well in that case what i would do is buy back

that option and only keep 50 of the value and then open up a new position rather than having to wait another three weeks for the other 50 of that premium right makes sense i mean typically the old saying holds true Profit is Profit and when the option loses value

fast and there is no harm taking Profit and moving on to the next trade this is typically why i don’t sell weekly options see weekly options don’t have a lot of time value in the premium so you’re already starting out not collecting much the option doesn’t

lose a lot of value until the last day or so so you’re having to wait until the last day or the day of expiration to see whether or not the option will expire in the money or out of the money i personally like monthly options much more because you can collect more premium i can then close my

positions early if necessary at 50 Profits 60 70 percent if they lose value quickly and then turn around and open up a new trade rather than having to wait until expiration to get the rest of that premium this ultimately will make you more Profit in the long run so

here is my strategy put together in a step-by-step formula you want to pick options that will give you a probability of success of 75 or higher now typically a one standard deviation move will put you at around 84 percent chance of Profit now i broke down why you should be looking

at standard deviation moves in one of my previous CashNews.cos so you can click here to watch that and go over it step by step but studies have shown that around 75 is that perfect sweet spot for collecting a good premium and having a good chance of success in the trade and based off of my

experience 75 80 percent works for me you want to pick an option that will return two to five percent on your Capital on your collateral that you put up on a monthly basis by picking stocks that have higher premium you’ll get those three four five percent returns or even

higher sometimes and when closing out your positions at fifty percent even you can easily average that two percent goal every month at least that’s what i try to do now studies have shown that about 30 to 45 days out until expiration is the best to sell options so i would look to go about 45

days out and start closing the position a week or two early depending on how much value that premium has lost so i would close the position and then open up a new one after closing the position i open up a new one so i don’t have to wait the full 45 days until expiration i start closing my

positions at about 50 Profit if the value of the premium decreases by 50 i start buying back the option at 50 60 75 and typically at around 75 percent i’m out of the option completely now this of course depends on how quickly you got to that 50 to 75 range how much time is

left on the contract but i rarely let the option expire worthless because i don’t want to wait and i want to get that collateral back and move on to the next trade so small gains boom boom boom don’t get too greedy and repeat the process so the key to this is not to just do it once or

twice but to do this repeatedly as many times as possible making small Profits each time have patience and be persistent nothing great ever came easily and even though that yes in my opinion this is the closest thing to free money and it is relatively easy you still have to know as

much as possible about what you’re doing to be great at it you can continue your journey learning options by watching my other CashNews.cos on options here and here and if you’ve learned something in this CashNews.co i would really appreciate just a little like on that CashNews.co just

a little tap and please subscribe if you haven’t already because there is a lot more content to come thank you so much for watching and we will see you on the next CashNews.co