1. Choose a stock to write an option on. That is easier said than done, but options screeners can help here, about which I tell you all in the members only Option Wealth Club - India. The option should be liquid, so that you can buy and sell without too much slippage.
2. Find stock options with high Intrinsic Volatility (IV). Ideally we are looking for stock options with an IV above 90 percentile.
3. Find the trend of the underlying stock. If it is trending up, write a put option and if trending down, write a call option. A simple look at the daily stock chart should be enough to tell you the trend. If the stock is in a range, you could use an option strangle.
4. Find an entry point, a small pull back to a strong support to improve your chances of success. MACD (Moving Average Convergence Divergence) or the Stochastic Oscillator should provide an entry point.
5. Decide the strike price of the stock option that you want to write (or sell). To improve your odds, write the strike price at least 1 standard deviation (σ) away from the current price. This has a better than 84% statistical chance of making you money when you write the option.
Now does this look like a lot of work? I did not say it is easy, did I? But it gets easy, really easy with a little practice. And that is what this club is about!
Lifetime membership for a single one-time payment of Rs. 1999 only! (That refers to my life, not yours. Sorry!)
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*Any investment advice given here is as is, where is. The author is neither a finance professional nor does he claim to have a crystal ball to show him the future. Please consult your trustworthy personal finance professional before committing any funds to market. The author cannot and does not take any responsibility for any market outcome, good, bad or otherwise.
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