WHAT THE HELL IS AN OPTION? (AND HOW DO I SELL ONE?)

A cinematic, noir-style split screen. On the left: a frantic, blurry trader surrounded by red screens and panic. On the right: a calm, sharp silhouette of a ‘Casino Boss’ overlooking the floor, holding a stack of chips. High contrast, moody lighting.

1. The Basics: Being the House

I jumped right into talking about selling options a few weeks ago, but I’m not sure I ever explained what that meant. Consider this Chapter 1 of my future “Free Share Formula: Using Premiums to Build a Portfolio for Free”

An option isn’t magic. It’s just a contract. It is a bet on time and direction.

• The Buyer is the gambler. They are paying a premium for the chance to hit a jackpot if the stock moves heavily in their favor.

• The Seller is the casino. We accept their bet, take their cash (premium) upfront, and bet that the clock will run out before they hit their number.

We are selling time. That’s it. Now, here is the machine we use to do it.

2. The Bread and Butter: The Wheel Strategy

A heavy, golden mechanical flywheel spinning. As it rotates, it generates sparks and drops gold coins into a growing pile. Steampunk aesthetic, dark background with subtle green chart lines in the smoke, representing a money-making machine.

Quick disclaimers are necessary before moving forward - aside from the usual “not financial advice”, “do your own homework lazy ass” - I’m going to be focusing on aggressive yields for key stocks that I’m familiar with. I’ve been doing this a long time and will be intimately familiar with a stock prior to selling aggressively.

There are plenty of conservative ways to play this game. You can buy the Mag 7, sell 30 delta calls 45 days out, and watch paint dry. It’s profitable, it works, and if you see big positions heading south its a great way to protect them rather than buying puts.

This guide isn’t about that. This is me, my style, and how I pay the bills with your money (lol).

The engine we use is “The Wheel.” It generates cash flow and forces you to be disciplined about buying stocks you actually want, but on sale.

Step 1: Selling Puts (The Setup) Find a stock you actually want to own. Sell a Cash-Secured Put (CSP).

• Scenario A: Stock stays above your strike? You keep 100% of the premium. Free money. Rinse and repeat.

• Scenario B: Stock tanks below your strike? You get assigned. This isn’t a failure. You just bought the dip at a discount using the premium to lower your cost basis. Now you own the shares.

Step 2: Selling Calls (The Payoff) Now that you’re holding the bag (the good kind), you switch to Covered Calls (CCs). You sell calls against your shares.

• Scenario A: Stock stays flat? Keep the premium. Lower your cost basis even more.

• Scenario B: Stock rips? Your shares get called away. You keep the premium plus the profit on the stock appreciation.

The Setup Criteria Don’t just throw darts.

• Trend: We want boring. Sideways chop. Look for an ADX under 20. If it’s trending hard, you’re fighting the current, and we can sell puts if its bullish, but should hold off on covering. Let it grow.

• Juice: We want rich premiums. Look for high Implied Volatility (IV). High IV means the market is scared or expecting a move, which means options are expensive. That is when we sell.

The Math Aim for 1% a week. That doesn’t sound sexy until you realize it’s 52% a year. (that’s the disclaimer sentence - I absolutely AIM for 2%, but am not disappointed with 1).

• Example: $XYZ is at $48. You sell a $47 put for $0.70.

• Capital at risk: $4,700 (to buy 100 shares).

• Return: ($70 / $4,700) = 1.48% for the week. That beats the hell out of a savings account.

3. Tactical Execution: Hunting Volatility

Timing is everything. You want to sell when the premiums are jacked up.

Earnings Plays Leading up to earnings, IV spikes. Everyone is buying protection or lotto tickets. The premiums get fat. You sell into that fear/greed. Once the news drops, the “Volatility Crush” hits. The uncertainty vanishes, IV plummets, and the option value drives off a cliff. That is where we profit.

4. Risk Management: Don’t Be an Idiot

There are definitely times when the market hits the fan (hi, November!) and we need coverage like we needed a condom your first week in the dorms. This can happen on stocks you weren’t intending on wheeling as well, but want to prevent a little bleeding.

Managing Assignment If a trade goes against you, don’t panic. You have two moves:

1. Take the Shares: If you still like the company, take the assignment. Start selling CCs.

2. Roll It: Buy back your loser and sell a new put for a later date (and maybe a lower strike). You’re buying time and usually collecting more credit. We don’t call this a loss; we call it a “temporary investment into someone else’s account” while we wait for the thesis to play out (another side note - I almost never, ever, except in crazy circumstances, actually do this. I made a commitment and I stick to it, but needs to be said it’s an option, pun not intended).

If you are loaded long on high-beta stocks, you need a hedge. I don’t care if it’s $VIX calls or holding $UVIX, SQQQ. If you don’t have downside protection when the market turns, you’re done. We use the income from the boring days to pay for the insurance for the chaotic days.

The Golden Rules

• Position Sizing: Never risk more than 3-5% of your port on one ticker. I don’t care how sure you are. If $RXRX or $UVIX decides to implode, you don’t want it taking your whole account with it.

• The Plan: Write it down if you have to - but stick a damn plan, man. For entry, exit, and what to do when things go south. If you’re trading on emotion, you’re already dead.

*Edited a minute later to fix a missing “)”