The seller of a PUT options contract is generally bullish that the share price will rise above the strike price on the expiration date so that he will collect the full premium without being obliged to buy any shares.
When the share price rises after I sold a PUT, what I like to do if the share price spikes or the premium drops significantly, I will close the PUT contract and open another new contract, selling a new PUT contract either at a higher strike price or a longer expiration date.
This is because as options sellers, the maximum returns are capped, by the total premium received from every contract. In a PUT contract, it does not matter if the share price exceeds $1 or $100 upon expiration, the premium will always be the same. While the premium is capped, it is inversely proportional to share price, i.e. when share price goes up, the premium goes down.
Thus, the way to get the most out of PUT contracts is to close it whenever the premium drops significantly (due to share price gain) and open up a new contract (sell another PUT contract with a new strike price/ expiration date) to earn more premium. This method helps to lock in the profit and prevent the risk of the share price’s sudden dip, which can cause premiums to go up again.
In essence, it is about re-adjusting the strike price to one that is higher (to align with stock trend) and thus helps collect more premium for the options contract seller. An example of how I roll PUT option contracts to maximise gains can be found in this article:
How I Made USD$9,827 In 3 Trading Days Using The Easiest Option Strategy
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Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading
The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
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Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
MY TRADES
Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
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I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day
I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021
This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months
Learning Investment With Jason Cai 