Commodity Option Selling: Quality over Quantity
Futures option sellers must choose between low probability yet high-risk event exposure, or high probability yet lower-risk exposure
When it comes to selling options on futures, there are several trading strategies that accomplish the goal of premium collection; However, not all market approaches come with the same risks, even if the reward is similar. For instance, a trader wishing to collect $1,000 in premium could sell a single option relatively close-to-the-money (the strike price of the option is near the current futures price), or he could sell ten deep-out-of-the-money options for $100 each. The reward is the same, but the risk is far different in regard frequency and magnitude. Join experienced futures and options broker, Carley Garner, to discuss the characteristics of each approach to option selling.
Major talking points of this free commodity trading video are:
- Can commodity option sellers sell their way out of anything?
- Option delta and probabilities, does it matter as much as we think it does?
- The truth about risk and reward when choosing an option strike price to sell
- The potential peril of selling options in high quantities
- The difficulty of selling close-to-the-money options on futures
- The Decision (not unlike Lebron Jame's July 2010 decision)