HOW TO FIND HIGH PREMIUM OPTIONS WHEN SELLING CALLS & SELLING PUTS!

Summary

In this video, the creator explains how to identify stocks with high option premiums for selling calls and puts. The discussion covers key option pricing concepts, including the Greeks—Delta, Gamma, Theta, and Vega—and highlights how implied volatility drives option premiums. Using Robinhood’s stock screener, viewers learn to filter for high implied volatility options, while the video emphasizes careful consideration of stock fundamentals and upcoming catalysts before selling. A practical example using Rumble illustrates potential returns from selling cash-secured puts, alongside the importance of understanding associated risks. The video also promotes Mumu for high APY and a free Discord community for further engagement.

Takeaways

• 😀 The video teaches how to find stocks with high premiums for selling call and put options.
• 😀 Understanding option pricing, particularly the Greeks, is essential before trading options.
• 😀 Delta measures how much an option's price changes per $1 move in the underlying stock, multiplied by 100 per contract.
• 😀 Gamma measures how much Delta changes when the underlying stock moves by $1.
• 😀 Theta shows how much an option loses in value each day due to time decay.
• 😀 Vega measures how sensitive an option's price is to changes in implied volatility; higher Vega often means higher premiums.
• 😀 High implied volatility usually indicates an upcoming catalyst or uncertainty, not automatically a safe opportunity.
• 😀 Stock screeners (e.g., Robinhood) can filter for options with high implied volatility to identify potential high-premium trades.
• 😀 Example: Selling a cash-secured put on Rumble with a $16.50 strike requires $1,650 collateral and could earn ~$190 premium.
• 😀 Always research the stock and understand the risks before selling options, especially during high volatility.
• 😀 High premiums are attractive but should be considered alongside risk, stock fundamentals, and personal comfort with owning shares.
• 😀 Time decay (Theta) and changes in implied volatility (Vega) are crucial factors that influence option premium over time.

Q & A

What is Delta in options trading and how does it affect option prices?

Delta measures how much an option's price changes for every $1 change in the price of the underlying stock. For example, if a call option has a Delta of 0.69, a $1 increase in the stock price would increase the option price by approximately $69 per contract.

What does Gamma represent in the context of options?

Gamma measures how much an option's Delta changes with a $1 movement in the underlying stock's price. It helps traders understand how sensitive the option's price is to large price movements in the stock.

How does Theta influence an option's value?

Theta represents time decay, which is the amount an option's price decreases each day, assuming all other factors remain constant. It reflects how the passage of time erodes the value of an option.

What role does Vega play in option pricing?

Vega measures how much an option's price changes in response to a 1% change in implied volatility. Higher Vega means the option's price is more sensitive to volatility changes, leading to higher premiums.

Why is implied volatility important when looking for high-premium options?

Implied volatility indicates the market's expectation of future stock price movement. Higher implied volatility generally leads to higher option premiums because the risk of large price swings increases the option's value.

How can traders use Robinhood to find options with high premiums?

On Robinhood, traders can use the Custom Screener, go to the Options section, and adjust the Implied Volatility slider to filter stocks with higher volatility, which often results in higher premiums.

Why should you be cautious when selling options with high implied volatility?

High implied volatility often occurs due to upcoming events such as earnings reports or product announcements, which can cause large, unpredictable stock movements. Selling options in such conditions can be risky.

What is a cash-secured put, and why is it important to consider the underlying stock?

A cash-secured put is an options strategy where you sell a put option and set aside enough cash to buy 100 shares if assigned. You should only sell puts on stocks you are comfortable owning at the strike price.

In the Rumble example, what was the premium and potential return for selling a $16.50 put?

Selling the $16.50 put required $1,650 in collateral, and the premium was about $190. This translates to a potential return of over 10% in about one week if the option expires worthless.

What practical steps should traders take before selling high-premium options?

Traders should: 1) check why implied volatility is high, 2) understand the Greeks, 3) ensure they are comfortable potentially owning the stock, and 4) only consider stocks that fit their investment strategy.

How does selling options differ from buying them in terms of risk and reward?

Selling options (calls or puts) involves collecting premiums upfront but exposes the seller to potentially large losses if the stock moves against them. Buying options offers limited loss (premium paid) but can have large percentage gains if the stock moves favorably.

Why is understanding the Greeks critical for options trading?

The Greeks (Delta, Gamma, Theta, Vega) quantify the various risks and sensitivities of an option's price to stock price movement, time decay, and volatility. Understanding them helps traders make informed decisions and manage risk effectively.