Option selling is another way to profit from option trading. Basically the idea behind the option selling strategy is to hope that the options you have sold expire worthless so that the premiums can be kept as profits. One can be covered or naked when it comes to option selling. If you have a corresponding position in the underlying asset when selling option, you are then covered. Being covered or naked can create a big impact on the risk or reward profile of the strategy you want to implement. In option selling, the implied volatility of the underlying asset should be noted. Remember that generally, when the implied volatility is high, the premium goes up and it goes down when the implied volatility is low, therefore, you would want to do option selling when the implied volatility is high.

There are several types of option selling strategies; covered call, naked call and ratio call write. Covered call is the most popular among these option selling strategies. A call is said to be covered when you own a long position in the underlying. Naked call selling on the other hand is a high risk option selling strategy. When the option trader is very bearish on the underlying, this strategy can be used. Take note that you will not be permitted by your broker to use this option selling strategy until you have been evaluated to have sufficient knowledge, financial resources and trading experience. Ratio call write is the combination of covered and naked calls. The trader implementing this type of option selling strategy is neither bearish nor bullish on the underlying.

Option selling also involves selling put options. Covered put is an option selling strategy that has the same, payoff as the naked call however this is seldom employed because for most traders naked call is much better. A written put is identified as covered when you have a short position on the underlying. Selling uncovered or naked puts is another high risk option selling strategy that can be used when the trader is very bullish on the underlying. Using this strategy is also a great way to purchase stocks at a discount. Just like other naked option selling strategies, your broker must assign first a sufficiently high trading level on your trading account before you are allowed to trade uncovered puts. With the combination of covered and naked puts, ratio put write can be implemented. The risk/reward profile of this option selling strategy is same as ratio call write but is rarely used.

Many traders do not consider option selling for they see it as too risky. Most think that they have a better deal in buying option; unlimited profit and limited risk. But the fact is that success is not in their favor just like a losing gambler; yes the rewards are really great but how about his chance to win? It is really slim. In buying option the chance that it will expire worthless is 90%, therefore option selling has a higher chance of success and this is not just a view it is a fact. Option selling might really be risky, but risk can always be reduced. Just make sure to approach option selling with proper mindset, do the selling correctly and the chance of gaining profits is in your favor. But remember, selling option is for those who are disciplined, experienced traders only.