InvestorQ : Can I start off in options by selling calls and puts or is too dangerous?
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Aashna Tripathi made post

Can I start off in options by selling calls and puts or is too dangerous?

Answer
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Dia Deshpande answered.
2 years ago


The whole problem in selling options as a strategy is that inflows come in a trickle and outflows can happen in bulk. This is more so, if you sell options without understanding the nuances of the game. But there are situations when you can use this strategy profitably. One such case is if you are holding on to a stock and selling call options, you are covered on your option risk. Also you earn money on idle stock holdings. Sounds good, eh!

Historically, option selling backfires after going in your favour for a very long time. Take the case of Nick Leeson who rode his luck selling strangles on the Nikkei for too long and was finally done in by the Kobe earthquake. Or the hundreds of traders who consistently made a killing selling put options on oil in 2007, before being done by the crash in oil. These are the kind of typical black swan events which can result in your option position backfiring.