Market Overview

Put Selling And Winning Systems In Any Market: Options Advice From MOJO Day Trading

Put Selling And Winning Systems In Any Market: Options Advice From MOJO Day Trading

This special presentation from ProTrader Mike is from Benzinga's first-ever virtual Benzinga Options Boot Camp that took place April 18. Click here for more coverage of this event with options trading experts giving traders of all experience levels real, dependable strategies for hitting the ground running or expanding an existing portfolio.

ProTrader Mike is the founder of trading education platform MOJO Day Trading.

During the presentation, ProTrader Mike details what successful trading looks like and provides viewers with one of his favorite strategies, put selling.

Selling Puts Like Buffett

The key to options is understanding the concept of insurance.

“Buffett built his fortune with the help of insurance holdings,” ProTrade Mike said. “Insurers receive premiums upfront, and pay claims later.”

The idea behind selling options is similar to selling insurance to a counterparty. In return for taking on the contractual obligation to acquire a security at a predetermined price, the "collect now, pay later" model leaves option sellers with money that can be floated to new investments.

ProTrader Mike details an example of selling a put on Coca-Cola Co (NYSE: KO).

“Warren Buffett determined $35 was a fair price, so he sold put options because he wanted 5 million shares. If Coca-Cola fell to $35, the option buyers -- known as the counterparty -- would put their shares to him for $35. Buffett would be forced to pay $35 a share, but he’s fine with that because it’s better than $39 when he first saw it. He could take a 10% discount to the current price and collect a $7.5 million in total premiums.”

According to Mike, put selling is one of the least complex strategies that can provide traders consistent returns as options are, in effect, overpriced insurance policies.

When purchasing options, one must be correct in their assumption on direction, time and volatility, a derivative of demand for options.

When the demand for an option increases, volatility and option premiums increase. 

However, demand for an option doesn't mean an underlying security will actually move. Instead, it’s a measure of the fear that has compelled market participants to increase their buying of what inherently is insurance.

As is true for most other aspects in life, fear is blown out of proportion and hence this is what happens in the options market: fear is overstated and volatility pumps premium into options, most of which expire worthless.

Trading Made Easy

To learn more on how to find and execute on opportunities in the options market with ProTrader Mike, click here to check out the Benzinga Options Bootcamp.

Photo by Artem Beliaikin from Pexels.


Related Articles (KO)

View Comments and Join the Discussion!

Posted-In: Benzinga Options Boot Camp ProTrader Mike Warren BuffettEducation Options Markets General Best of Benzinga