SELLING OTM CREDIT SPREADS. If you get a compelling bearish setup, short OTM call options/spreads, stop above resistance. It is as good or as bad a trading method as any other. While selling naked calls is a high risk strategy that is inappropriate for most investors, selling naked puts does not carry the same type of risk. Happy trading! Add downside protection to your portfolio in the event of a market collapse. As options sellers, we take the other side of the option buyer’s bet based on our interpretation of Master Trader chart patterns. Selling put options can bring a steady stream of income into your brokerage account. Naked options are just too risky. In selling OTM options around compelling short-term turning points, you profit from the rapid decay of the option’s value into expiration in just a few hours – and the stock can still go against you somewhat to make full profit! Before we begin… Did you know that most traders are always trying to score big… driven by the burning desire to hit it big. It gives you a high upside cap, thus allowing you to be bullish, while still giving you downside protection compared to buying at the current market price. Contractually, this type of option selling gives the option buyer the right to sell you (the seller) shares at an agreed upon price by an agreed upon date in exchange for a premium (cash payment). Because of the ease of the strategy and statistical “edge” that exists in selling options around compelling chart patterns, these trades are available in all market environments – trending, choppy, or even a volatile mess. I am not covering the pros/cons of being option buyers. Looks for high yields on OTM puts by comparing Yield to Strike (YTS) ... Income generation . All of the above to simply explain I'm looking at selling OTM Puts to generate Income and wanted to know tax treatment. My decision to enter into a trade is different from yours. Selling puts is a great way to get paid cash TODAY for simply agreeing to buy a stock you like 1) by a future date (the “expiration” date), and 2) at a price that’s LESS than what it’s currently trading for. IF you're willing to own the stock its a great strategy. Naked puts is also often referred to as selling cash secured puts as the investor will often have the cash sitting aside to cover the stock price in the event that the naked puts are assigned. And then the game is over. Options are time depleting assets and decrease in value each day. So, selling options on the day of expiration is as close to a sure thing in options trading that you will learn. Check out this one-day trade that we gave our Weekly Options Trader subscribers last Friday that was sent to them in this Text Message: The Master Trader Method (MTM) combines specific chart patterns – that we have used for decades — and volatility analysis — to sell short-term expiring options to generate income every week. This article only deals with writing options for income. Our Weekly Options Trader specializes in selling options and credit spreads around compelling chart patterns like the above (bullish and bearish) which expire in 10 days or less. If the option buyer doesn’t exercise the contract by … A melting ice cube. You’re betting for a specific outcome with odds of winning a mere 25% to 40%! Now we are going to lay out the criteria and checklist for selling the OTM spreads. For those new to option writing, I suggest you read my Options 101 blog. Options sellers receive money for the obligation to buy or sell the underlying within a specified time. When you trade stock, you must be right on direction to profit. Scan your own Universe + Gaps/News/Earnings/High Implied Volatility/Index ETFs. If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com, Access the End of Year Specials for Courses and Memberships, Trading the Pristine Method — Its Origin and End, Pristine Trading – Trading the Pristine Method, Trading Education – A Path to Financial Freedom, Starting Path to Being a Master Trader and Investor, Master Trader Option Strategies Series for Investors and Active Traders, Directional Option Strategies for Swing and Day Trading, Mastering Advanced Credit Spreads for Income, Swing Trading Strategies For the Master Trader, Trading and Investing Position and Money Management – AMS. Am not covering the pros/cons of being assigned: Premium/ risk: highest premium received Courses! 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