Some Common Pitfalls in Options-Selling

One of the more interesting discussions around Chez Melvin this past weekend has now spilled over into the week. The topic of options-selling came up, as a couple of folks have recently had their heads kicked in and their net worth diminished by disastrous short put positions. I have been known to sell puts from time to time, and have found the conversation to be one of great interest. The traders with losing options positions were experienced investors, but new to the options-selling game. They made the same mistakes I always see made by professionals and neophytes alike.

Selling puts on stocks, indices and ETFs can look like free money. We all know most out-of-the-money options expire worthless, with the seller keeping the premium. What most traders fail to take into account, however, is that options payoffs are asymmetrical in nature. You can sell premiums and have 90% winners, and end up broken by that final trade. Options-sellers can find themselves collecting pennies and paying out dollars....664 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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