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An introduction to options for newbies in the US stock market (2) Single-leg options strategy as a seller In the previous article, as single-leg option buyers (

2026-07-07·x-repost-20260707-144506

An introduction to options for newbies in the US stock market (

2) Single-leg options strategy as a seller In the previous article, as single-leg option buyers (Buy Call/Buy Put), we experienced the pleasure of "using small to gain big", but we also realized a cruel reality: time is the enemy of the buyer. As long as the stock trades sideways, your premium will shrink every day.

In this article, we completely reverse our identity: as a seller, you no longer pay money, but receive money. Time is no longer your enemy, but your partner who works for you. The two legs of the seller are Sell Put (sell put option) and Sell Call (sell call option).

If you haven’t read the first article, I suggest you read it in order~ You can click the link below to jump 👇Introduction to options science for novices in the US stock market (

1) Conceptual understanding + buyer’s single-leg strategy: https://x.com/staypinkyup/status/2061039493797519862 We still use the 1 million house in the previous article to help us understand.

Later in the article, we will also use a real stock $GOOG (assuming the current price is $350) to calculate the specific amount of each situation so that you can understand options. Before we begin, let’s re-emphasize a fact that was mentioned in the previous article but must be engraved in the mind of the seller: one option contract = 100 shares. Remember!

🏠Use a house worth 1 million as an example 1. Selling put options (Sell Put): Steady rent collection by “insurance institutions” Remember the example of buying Put in the previous article?

At that time, you were a homeowner, and you spent 50,000 in premiums to buy insurance that said "even if the house plummets, you can sell the house for 1 million." Now, we stand on the other side of the contract - you are the "rich institution" who received 50,000 in premiums.

You make an agreement with the other party: In the next three months, no matter how the house price drops, as long as the other party is willing, you will take over this house for 1 million. In return, you will now pocket 50,000 in premium up front. You accept the 50,000 yuan and sign. What will happen in the next three months?

🥳 Scenario 1: House prices have risen and are stable above 1 million: 3 months later, assuming the market price of the house is 1.1 million, the owner will certainly not sell it to you for 1 million at a loss. The contract is void, you did nothing and earned the 50,000 yuan protection fee in vain.

🥲 Scenario 2: The house price really plummeted to 800,000: the owner immediately exercised his right and gave you this house worth only 800,000 for 1 million. You were "forced to take over" and spent 1 million to buy a house with a current value of 800,000. But don’t forget that you collected 50,000 in premiums, so your actual cost is 950,000.

✏️Mapped to options: This is a “Sell Put” (Sell Put) In the options market, the above operation is called Sell Put. You play the role of the insurance company and collect the royalties. Passive assignment is called "Assignment": If the stock falls below the agreed exercise price, you will be forced to buy the stock.

😏 Key mentality: Because of the possibility of being "forced to take over", you should only Sell Put those houses (stocks) that you are willing to hold and buy at this price. In this way, even if you do take the order, you are just "buying something you originally wanted at a discounted price." How to use it in actual combat?

Duan Yongping likes to use this trick all year round, and Buffett (Berkshire) also sold put. They are not doing it to earn that little premium, but they are "willing to own this good company at this price." If you really want to buy a stock at $100, don't wait. You can sell a Put with a strike price of $100.

If it really falls, you can buy at the target price as you wish (earning a free premium and reducing the cost). If it doesn't fall, you will get the royalties in vain. 2.

Selling call options (Sell Call): Additional income generation for “Buddhist landlords” Let’s look at the example of buying Call in the previous article: You paid a deposit of 50,000 yuan and locked in the right to “buy this house for 1 million yuan within 3 months”.

Now you stand on the opposite side again - you are the homeowner who accepted the 50,000 deposit. You have a house worth $1 million. You think that house prices will not rise in the next few months. Even if they rise, you will be happy to sell and cash out when it reaches 1 million.

At this time, an enthusiastic real estate speculator comes to you, hands you a "deposit" of 50,000 yuan, and asks you to sign a contract: In the next 3 months, no matter how high the house price rises, he has the right to buy your house for 1 million yuan. You accept the 50,000 yuan and sign. What happens next?

🥳 Situation 1: The house price has dropped, or it hasn’t moved much: the real estate speculator broke the contract and didn’t buy it. The contract is voided, the house is still yours, and you get a net profit of 50,000 down payment. It is equivalent to you collecting a rent. 🥲 Scenario 2: The house price skyrocketed to 1.5 million.

The real estate speculator is overjoyed, and of course the other party will exercise his right to buy it from you for 1 million. And you will be forced to sell to him. In total, you made a deposit of 50,000 + selling the house for 1 million, but you could only watch it rise to 1.5 million, making a profit of 500,000 less. But you don’t actually lose money.

⚠️Note: In the above situation, you really have the house in your hand. The risk of this strategy is controllable. The worst result is that the increase is short. If you still dare to collect a deposit when you don’t have a house in hand, that’s another story (I’ll talk about it later in this article).

✏️Mapped to options: This is a “covered call” (Covered Call) How to use it in actual combat? Collect some rent for the stocks in your hands. If you have been holding 100 shares of a certain company's stock and it plummets, you will be upset every day.

You can repeatedly sell Calls to collect premiums to "recover blood" and gradually reduce the cost of holding positions. But there is a

key point: try to choose the exercise price above your cost price (or use the premiums collected in rounds to spread the net cost below the exercise price). Otherwise, once it rebounds and is forcibly sold at a price lower than cost, you will be cutting the meat at a loss instead of "unwinding".

As long as you choose the right exercise price, even if you are eventually bought, you will be out of the game at a price you are satisfied with. 💰How much money will you make/lose in a real example?

Calculate it using $GOOG (assuming the current price is $350) Sell Put Situation Suppose you were originally willing to own GOOG at $340, so you sold a Put with an exercise price of $340 and expired in one month, and received a premium of $8/share. One share = 100 shares, so you pocket $8 × 100 = $800 first.

At the same time, according to the "cash guarantee" principle, $340 × 100 = $34,000 must be prepared in the account in case the shares are really taken over. 🥳 When GOOG expires, it is above $340: the Put is invalid, and you make a net profit of $800 (this is your maximum profit, the 800 you have pocketed after selling).

🥲 GOOG fell to $320 and was taken over: You must buy 100 shares at $340, spending $34,000. The current market value of these 100 shares is only $32,000, with a carrying loss of $2,000. But you received a premium of $800 before, so the net loss is $1200, and your actual position cost = $340 − $8 = $332/share.

😱 Extreme situation: GOOG drops to $0 - you still have to buy 100 shares at $340, the maximum loss = $34000 − $800 = $33200. This is the true meaning of "Sell Put Risk ≈ Holding Stocks": you can bear as much as the stock price falls, and your earnings will always be capped at $800.

⚠️Assignment The "forced takeover" mentioned repeatedly before has a formal term in options: assignment, which is also called assignment in colloquial terms. That is, the Put you sold out was exercised by the other party, and you bought 100 shares at the exercise price. Two main points: Taking over shares is not necessarily a bad thing.

If you originally wanted this stock, buying the stock = getting it at a discounted price (exercise price − premium), just in time to enter the second half of the wheel. But taking over shares will actually occupy funds. One contract = 100 shares, assuming the exercise price is $50, you need to prepare $5,000 in cash.

This is why we emphasized "cash guarantee" earlier. Don't sell a bunch of Put and feel that you are using free money for nothing. When you really want to take over the shares, you can't come up with the money to do so. Sell Call situation Suppose you already have 100 shares of GOOG (cost $350, total $35,000).

You don’t expect it to surge in the short term, so you sell a Call with an exercise price of $370 and expires in one month. You receive a premium of $5/share, and first pocket $5 × 100 = $500. 🥳 When GOOG expires, it is below $370: the call is invalid, you keep 100 shares + make a net profit of $500 in "rent", and sell the next one.

🥲 GOOG rises to $400 and the option is exercised: you must hand over the 100 shares at $370 (recovering $37,000). Calculate the general ledger: You sold $20/share (+$2000) + $500 premium = actual profit of $2500 higher than the cost price of $350. But GOOG is already $400, and you sold it out (400 − 370) × 100 = $3000 increase.

I made money, but I didn't catch the main wave. This is the essence of a covered call: trading a capped increase for a guaranteed premium. But please remember that one premise is that you really have 100 shares in your hand, so the worst you can do is "make less money." The really scary thing is that you dare to sell it if you don’t have a ticket in hand.

⚠️Risk of selling money Fly selling means that after you covered the call (or sold the underlying stock), the stock price soared, and you were forced to hand over your chips at a low price, and missed the subsequent big rise. If the house goes up to 1.5 million, but you can only sell it for 1 million, it means the sale is overpriced.

The essence of the seller's strategy is to "give up the possibility of a big rise" in exchange for "a certain, limited premium." In mild or choppy conditions, this is a good deal. But once you encounter the main Shenglang, the little premium you charge will not be able to make up for the shortfall.

Therefore, when making a covered call, don’t set the exercise price too close or too low to leave some room for an increase, unless you originally planned to clear your position at that price. 🚫Nude Sell Call Risk (the most dangerous kind)‼ ️ Finally, an important warning must be given.

If you don’t have that house (that stock) in hand when you sell call, this is called a naked call. An example of returning to a house is that you received a deposit of 50,000 yuan from someone else and promised that "the other party can buy this house from you for 1 million yuan at any time within 3 months." But you don't have a room at all.

The house price rises to 1.5 million → You have to first spend 1.5 million to buy a house in the market, and then pay it to the other party for 1 million, resulting in a net loss of 450,000 (deducting the deposit). How about rising to 3 million or 5 million? As high as housing prices can rise, you can suffer huge losses.

The theoretical loss for a naked Sell Call is unlimited. Also use $GOOG to do the math.

You also sell $370 Call and receive $500, but this time you don’t have one share of GOOG: GOOG rises to $400 → You have to first spend $40,000 to buy 100 shares in the market, and then hand them over at $370 (recovering $37,000), resulting in a loss of $3,000, deducting the $500 premium, and a net loss of $2,500.

GOOG skyrocketed to $500 because of a certain benefit → You spent $50,000 to buy it and sold it at $37,000, resulting in a loss of $13,000. After deducting the premium, the net loss was $12,500. And there is no upper limit at all: as long as the stock rises higher, you will lose more, and in theory you can lose everything.

Compare the two people who also rose to $500: The covered call player with tickets in front just sold the stock at $370 and made a lot less (sold greatly), but his account is still positive. The person who sold Naked Call actually paid $12,500. One is "little profit" and the other is "huge loss".

That's the difference between having those 100 bottom stocks in hand. Sell calls must be "covered" (have tickets in hand), novices should never sell calls naked. How to use these two strategies better? Before talking about specific techniques, let’s make it clear the seller’s biggest but most easily overlooked advantage: time is on your side.

Every option has an expiration date (Expiration Date), which is the "maximum limit" of the contract. The buyer pays the premium and is racing against time. The closer to expiration, the faster the time value evaporates (this is the Theta discussed in the previous article).

And when you, as the seller, sit on the other side of the contract and collect the money, the situation is exactly the opposite: every day that passes, the contract depreciates a little in your favor. The same Theta will cause blood loss to the buyer and return blood to you.

What's even better is that this advantage is not uniform or linear, but gets stronger as it gets closer to the expiration date. The time value decay of options is an "accelerating decline" curve: it slowly declines one month before expiration, then begins to decline sharply in the last week or two, and almost vertically reaches zero in the last few days.

So as long as the stock price does not move in a direction that will hurt you, you often don't have to do anything. Just "wait" and the floating profit in your account will grow on its own. This is why people say that sellers are "making money from time." However, the seller's strategy looks mild, but "collecting rent" does not mean "making a steady profit".

Some practical tips: Only do it at the price you are willing to trade. Sell Put exercise price, choose the price you are really willing to take over. For the exercise price of Covered Call, choose the price you are really willing to sell at (usually higher than your holding cost, otherwise it means selling at a low price).

Don't become greedy just to get a little more royalty. Sell Put The closer the exercise price is to the current stock price, the higher the premium will be. If you set it too high, the probability of taking the order will greatly increase. Sell Call: The closer the exercise price is to the current stock price, the higher the premium will be.

However, if the exercise price is set too low, the probability of selling will increase. The extra few hundred dollars in premiums often aren't enough to fill the pitfalls behind. Sell when the IV is high. The higher the IV, the thicker the premium.

Moreover, the IV crush (volatility plummeting after the financial report) mentioned in the previous article is a nightmare for the buyer, but an assist for you, the seller. But there is a trade-off: IV is the volatility.

The stock price is prone to jump sharply before and after the event, so the risk of taking orders and selling out will also increase simultaneously. Keep enough cash (Cash-Secured). Sell Put Be sure to reserve cash that can actually take over the order, and don't sell naked with high leverage.

Otherwise, if there is a decline, you may be liquidated before taking over. Think of it as a "buying and selling decision" rather than "receiving a premium." Again: downside risk for Sell Put ≈ Holding. Before placing an order, ask yourself - "Am I willing to own it at this price?" If the answer is "yes," then go ahead and do it.

Learn to be flexible and close positions in advance, without necessarily waiting until the expiration date. After selling an option, you can buy back the same contract (Buy to Close) at any time in the market to close the transaction in advance without waiting until the expiration date.

This is the steering wheel in your hand, which can be used to lock in profits in advance or admit losses and stop losses. Early closing: use $GOOG to calculate it Also use the previous GOOG Sell Put: the current price is $350, you sell $340 Put and receive $800 first. 😎 Early profit closing: After two weeks, GOOG has stayed steadily above $350.

Adding time decay, this Put is now only worth $2/share (i.e. $200) in the market. You can buy it back to close the position for $200, pocketing $800 − $200 = $600. This is already 75% of the maximum profit ($800). The remaining residual value is not worth the tail risk you have to carry for another two weeks.

It is better to free up the cash to sell the next one, instead of greedy for the last few dozen yuan. 🥵Admit loss, stop loss and close the position: On the other hand, if GOOG plummets in your unfavorable direction, approaching $340, or even falling below, this Put does not fall but rises, rising from $800 to $2,000.

You judge that it will continue to fall and you don’t want to take over the stock at a high price, so you spend $2,000 to buy it back and close the position, realizing a loss of $2,000 − $800 = $1,200 and leaving the market cleanly. This can avoid being caught by 100 shares at a high or suffering a larger decline.

Therefore, closing a position early may mean making profits in advance, or it may mean admitting a loss and stopping the loss. The expiration date is just a "deadline" but it is by no means the only time to exit.

The Wheel strategy (The Wheel) flexibly connects two legs into a loop A fun way to play is to connect Sell Put and Sell Call end to end, which is the classic "wheel strategy": Step 1: Sell Put on a stock you are willing to hold for the long term and collect a premium. No order received → Repeat Sell Put and continue to collect premiums.

Until the takeover (takeover of shares) → You now actually get these 100 shares at the cost of "exercise price − total premium received". Step 2: Make a sell call on the 100 shares in your hand, collect the deposit, and use it as "rent". Not bought → Repeat Sell Call and continue to collect rent.

Being bought (the stock price goes up) → sell at the exercise price and earn the price difference + the premium collected along the way → go back to the first step and the wheel continues to turn.

Ideally, you would cycle continuously between "collecting premiums at a low level and waiting to receive goods → collecting rents and waiting to sell during the holding period", collecting money at both ends.

⚠️But the wheel is not a perpetual motion machine: if the stock keeps falling and you take over a hand of goods that continue to depreciate, the premium may be a drop in the bucket. Therefore, the wheel is only suitable for targets that you are optimistic about for the long term and are really willing to hold.

Summary: Four One-Leg Strategies At this point, the four single-leg options strategies have been explained: Previous article · Single-leg option buyer: Buy Call (pay a deposit): Spend a small amount of money and use leverage to bet on big gains.

(Risk: Misreading and getting to zero, being worn to death by time) Buy Put (Buy Insurance): Buy downside protection for your position. (Risk: Misreading and getting to zero, being worn to death by time) This article · Single-leg option seller: Sell Put (collect protection fee): Receive good assets at a discount and collect money while waiting.

(Risk: Taking over junk stocks and buying bargains halfway up the mountain) Sell Call (receive deposit): Collect rent and blood for the spot in hand. (Risk: Missing out on the sharp rise in the market, taking a big shot in the bull market) The buyer and seller of single-leg options are like two sides of a coin: the buyer has limited losses.

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An introduction to options for newbies in the US stock market (2) Single-leg options strategy as a seller In the previous article, as single-leg option buyers (

An introduction to options for newbies in the US stock market (2) Single-leg options strategy as a seller In the previous article, as single-leg option buyers (Buy Call/Buy Put), we experienced the pleasure of "using small to gain big", but we also realized a cruel reality: time is the enemy of the buyer. As long as the stock trades sideways, your premium will shrink every day. In this article, we completely reverse our identity: as a seller, you no longer pay money, but receive money. Time is no longer your enemy, but your partner who works for you. The two legs of the seller are Sell Put (sell put option) and Sell Call (sell call option). If you haven’t read the first article, I suggest you read it in order~ You can click the link below to jump 👇Introduction to options science for novices in the US stock market (1) Conceptual understanding + buyer’s single-leg strategy: https://x.com/staypinkyup/status/2061039493797519862 We still use the 1 million house in the previous article to help us understand. Later in the article, we will also use a real stock $GOOG (assuming the current price is $350) to calculate the specific amount of each situation so that you can understand options. Before we begin, let’s re-emphasize a fact that was mentioned in the previous article but must be engraved in the mind of the seller: one option contract = 100 shares. Remember! 🏠Use a house worth 1 million as an example 1. Selling put options (Sell Put): Steady rent collection by “insurance institutions” Remember the example of buying Put in the previous article? At that time, you were a homeowner, and you spent 50,000 in premiums to buy insurance that said "even if the house plummets, you can sell the house for 1 million." Now, we stand on the other side of the contract - you are the "rich institution" who received 50,000 in premiums. You make an agreement with the other party: In the next three months, no matter how the house price drops, as long as the other party is willing, you will take over this house for 1 million. In return, you will now pocket 50,000 in premium up front. You accept the 50,000 yuan and sign. What will happen in the next three months? 🥳 Scenario 1: House prices have risen and are stable above 1 million: 3 months later, assuming the market price of the house is 1.1 million, the owner will certainly not sell it to you for 1 million at a loss. The contract is void, you did nothing and earned the 50,000 yuan protection fee in vain. 🥲 Scenario 2: The house price really plummeted to 800,000: the owner immediately exercised his right and gave you this house worth only 800,000 for 1 million. You were "forced to take over" and spent 1 million to buy a house with a current value of 800,000. But don’t forget that you collected 50,000 in premiums, so your actual cost is 950,000. ✏️Mapped to options: This is a “Sell Put” (Sell Put) In the options market, the above operation is called Sell Put. You play the role of the insurance company and collect the royalties. Passive assignment is called "Assignment": If the stock falls below the agreed exercise price, you will be forced to buy the stock. 😏 Key mentality: Because of the possibility of being "forced to take over", you should only Sell Put those houses (stocks) that you are willing to hold and buy at this price. In this way, even if you do take the order, you are just "buying something you originally wanted at a discounted price." How to use it in actual combat? Duan Yongping likes to use this trick all year round, and Buffett (Berkshire) also sold put. They are not doing it to earn that little premium, but they are "willing to own this good company at this price." If you really want to buy a stock at $100, don't wait. You can sell a Put with a strike price of $100. If it really falls, you can buy at the target price as you wish (earning a free premium and reducing the cost). If it doesn't fall, you will get the royalties in vain. 2. Selling call options (Sell Call): Additional income generation for “Buddhist landlords” Let’s look at the example of buying Call in the previous article: You paid a deposit of 50,000 yuan and locked in the right to “buy this house for 1 million yuan within 3 months”. Now you stand on the opposite side again - you are the homeowner who accepted the 50,000 deposit. You have a house worth $1 million. You think that house prices will not rise in the next few months. Even if they rise, you will be happy to sell and cash out when it reaches 1 million. At this time, an enthusiastic real estate speculator comes to you, hands you a "deposit" of 50,000 yuan, and asks you to sign a contract: In the next 3 months, no matter how high the house price rises, he has the right to buy your house for 1 million yuan. You accept the 50,000 yuan and sign. What happens next? 🥳 Situation 1: The house price has dropped, or it hasn’t moved much: the real estate speculator broke the contract and didn’t buy it. The contract is voided, the house is still yours, and you get a net profit of 50,000 down payment. It is equivalent to you collecting a rent. 🥲 Scenario 2: The house price skyrocketed to 1.5 million. The real estate speculator is overjoyed, and of course the other party will exercise his right to buy it from you for 1 million. And you will be forced to sell to him. In total, you made a deposit of 50,000 + selling the house for 1 million, but you could only watch it rise to 1.5 million, making a profit of 500,000 less. But you don’t actually lose money. ⚠️Note: In the above situation, you really have the house in your hand. The risk of this strategy is controllable. The worst result is that the increase is short. If you still dare to collect a deposit when you don’t have a house in hand, that’s another story (I’ll talk about it later in this article). ✏️Mapped to options: This is a “covered call” (Covered Call) How to use it in actual combat? Collect some rent for the stocks in your hands. If you have been holding 100 shares of a certain company's stock and it plummets, you will be upset every day. You can repeatedly sell Calls to collect premiums to "recover blood" and gradually reduce the cost of holding positions. But there is a key point: try to choose the exercise price above your cost price (or use the premiums collected in rounds to spread the net cost below the exercise price). Otherwise, once it rebounds and is forcibly sold at a price lower than cost, you will be cutting the meat at a loss instead of "unwinding". As long as you choose the right exercise price, even if you are eventually bought, you will be out of the game at a price you are satisfied with. 💰How much money will you make/lose in a real example? Calculate it using $GOOG (assuming the current price is $350) Sell Put Situation Suppose you were originally willing to own GOOG at $340, so you sold a Put with an exercise price of $340 and expired in one month, and received a premium of $8/share. One share = 100 shares, so you pocket $8 × 100 = $800 first. At the same time, according to the "cash guarantee" principle, $340 × 100 = $34,000 must be prepared in the account in case the shares are really taken over. 🥳 When GOOG expires, it is above $340: the Put is invalid, and you make a net profit of $800 (this is your maximum profit, the 800 you have pocketed after selling). 🥲 GOOG fell to $320 and was taken over: You must buy 100 shares at $340, spending $34,000. The current market value of these 100 shares is only $32,000, with a carrying loss of $2,000. But you received a premium of $800 before, so the net loss is $1200, and your actual position cost = $340 − $8 = $332/share. 😱 Extreme situation: GOOG drops to $0 - you still have to buy 100 shares at $340, the maximum loss = $34000 − $800 = $33200. This is the true meaning of "Sell Put Risk ≈ Holding Stocks": you can bear as much as the stock price falls, and your earnings will always be capped at $800. ⚠️Assignment The "forced takeover" mentioned repeatedly before has a formal term in options: assignment, which is also called assignment in colloquial terms. That is, the Put you sold out was exercised by the other party, and you bought 100 shares at the exercise price. Two main points: Taking over shares is not necessarily a bad thing. If you originally wanted this stock, buying the stock = getting it at a discounted price (exercise price − premium), just in time to enter the second half of the wheel. But taking over shares will actually occupy funds. One contract = 100 shares, assuming the exercise price is $50, you need to prepare $5,000 in cash. This is why we emphasized "cash guarantee" earlier. Don't sell a bunch of Put and feel that you are using free money for nothing. When you really want to take over the shares, you can't come up with the money to do so. Sell Call situation Suppose you already have 100 shares of GOOG (cost $350, total $35,000). You don’t expect it to surge in the short term, so you sell a Call with an exercise price of $370 and expires in one month. You receive a premium of $5/share, and first pocket $5 × 100 = $500. 🥳 When GOOG expires, it is below $370: the call is invalid, you keep 100 shares + make a net profit of $500 in "rent", and sell the next one. 🥲 GOOG rises to $400 and the option is exercised: you must hand over the 100 shares at $370 (recovering $37,000). Calculate the general ledger: You sold $20/share (+$2000) + $500 premium = actual profit of $2500 higher than the cost price of $350. But GOOG is already $400, and you sold it out (400 − 370) × 100 = $3000 increase. I made money, but I didn't catch the main wave. This is the essence of a covered call: trading a capped increase for a guaranteed premium. But please remember that one premise is that you really have 100 shares in your hand, so the worst you can do is "make less money." The really scary thing is that you dare to sell it if you don’t have a ticket in hand. ⚠️Risk of selling money Fly selling means that after you covered the call (or sold the underlying stock), the stock price soared, and you were forced to hand over your chips at a low price, and missed the subsequent big rise. If the house goes up to 1.5 million, but you can only sell it for 1 million, it means the sale is overpriced. The essence of the seller's strategy is to "give up the possibility of a big rise" in exchange for "a certain, limited premium." In mild or choppy conditions, this is a good deal. But once you encounter the main Shenglang, the little premium you charge will not be able to make up for the shortfall. Therefore, when making a covered call, don’t set the exercise price too close or too low to leave some room for an increase, unless you originally planned to clear your position at that price. 🚫Nude Sell Call Risk (the most dangerous kind)‼ ️ Finally, an important warning must be given. If you don’t have that house (that stock) in hand when you sell call, this is called a naked call. An example of returning to a house is that you received a deposit of 50,000 yuan from someone else and promised that "the other party can buy this house from you for 1 million yuan at any time within 3 months." But you don't have a room at all. The house price rises to 1.5 million → You have to first spend 1.5 million to buy a house in the market, and then pay it to the other party for 1 million, resulting in a net loss of 450,000 (deducting the deposit). How about rising to 3 million or 5 million? As high as housing prices can rise, you can suffer huge losses. The theoretical loss for a naked Sell Call is unlimited. Also use $GOOG to do the math. You also sell $370 Call and receive $500, but this time you don’t have one share of GOOG: GOOG rises to $400 → You have to first spend $40,000 to buy 100 shares in the market, and then hand them over at $370 (recovering $37,000), resulting in a loss of $3,000, deducting the $500 premium, and a net loss of $2,500. GOOG skyrocketed to $500 because of a certain benefit → You spent $50,000 to buy it and sold it at $37,000, resulting in a loss of $13,000. After deducting the premium, the net loss was $12,500. And there is no upper limit at all: as long as the stock rises higher, you will lose more, and in theory you can lose everything. Compare the two people who also rose to $500: The covered call player with tickets in front just sold the stock at $370 and made a lot less (sold greatly), but his account is still positive. The person who sold Naked Call actually paid $12,500. One is "little profit" and the other is "huge loss". That's the difference between having those 100 bottom stocks in hand. Sell calls must be "covered" (have tickets in hand), novices should never sell calls naked. How to use these two strategies better? Before talking about specific techniques, let’s make it clear the seller’s biggest but most easily overlooked advantage: time is on your side. Every option has an expiration date (Expiration Date), which is the "maximum limit" of the contract. The buyer pays the premium and is racing against time. The closer to expiration, the faster the time value evaporates (this is the Theta discussed in the previous article). And when you, as the seller, sit on the other side of the contract and collect the money, the situation is exactly the opposite: every day that passes, the contract depreciates a little in your favor. The same Theta will cause blood loss to the buyer and return blood to you. What's even better is that this advantage is not uniform or linear, but gets stronger as it gets closer to the expiration date. The time value decay of options is an "accelerating decline" curve: it slowly declines one month before expiration, then begins to decline sharply in the last week or two, and almost vertically reaches zero in the last few days. So as long as the stock price does not move in a direction that will hurt you, you often don't have to do anything. Just "wait" and the floating profit in your account will grow on its own. This is why people say that sellers are "making money from time." However, the seller's strategy looks mild, but "collecting rent" does not mean "making a steady profit". Some practical tips: Only do it at the price you are willing to trade. Sell Put exercise price, choose the price you are really willing to take over. For the exercise price of Covered Call, choose the price you are really willing to sell at (usually higher than your holding cost, otherwise it means selling at a low price). Don't become greedy just to get a little more royalty. Sell Put The closer the exercise price is to the current stock price, the higher the premium will be. If you set it too high, the probability of taking the order will greatly increase. Sell Call: The closer the exercise price is to the current stock price, the higher the premium will be. However, if the exercise price is set too low, the probability of selling will increase. The extra few hundred dollars in premiums often aren't enough to fill the pitfalls behind. Sell when the IV is high. The higher the IV, the thicker the premium. Moreover, the IV crush (volatility plummeting after the financial report) mentioned in the previous article is a nightmare for the buyer, but an assist for you, the seller. But there is a trade-off: IV is the volatility. The stock price is prone to jump sharply before and after the event, so the risk of taking orders and selling out will also increase simultaneously. Keep enough cash (Cash-Secured). Sell Put Be sure to reserve cash that can actually take over the order, and don't sell naked with high leverage. Otherwise, if there is a decline, you may be liquidated before taking over. Think of it as a "buying and selling decision" rather than "receiving a premium." Again: downside risk for Sell Put ≈ Holding. Before placing an order, ask yourself - "Am I willing to own it at this price?" If the answer is "yes," then go ahead and do it. Learn to be flexible and close positions in advance, without necessarily waiting until the expiration date. After selling an option, you can buy back the same contract (Buy to Close) at any time in the market to close the transaction in advance without waiting until the expiration date. This is the steering wheel in your hand, which can be used to lock in profits in advance or admit losses and stop losses. Early closing: use $GOOG to calculate it Also use the previous GOOG Sell Put: the current price is $350, you sell $340 Put and receive $800 first. 😎 Early profit closing: After two weeks, GOOG has stayed steadily above $350. Adding time decay, this Put is now only worth $2/share (i.e. $200) in the market. You can buy it back to close the position for $200, pocketing $800 − $200 = $600. This is already 75% of the maximum profit ($800). The remaining residual value is not worth the tail risk you have to carry for another two weeks. It is better to free up the cash to sell the next one, instead of greedy for the last few dozen yuan. 🥵Admit loss, stop loss and close the position: On the other hand, if GOOG plummets in your unfavorable direction, approaching $340, or even falling below, this Put does not fall but rises, rising from $800 to $2,000. You judge that it will continue to fall and you don’t want to take over the stock at a high price, so you spend $2,000 to buy it back and close the position, realizing a loss of $2,000 − $800 = $1,200 and leaving the market cleanly. This can avoid being caught by 100 shares at a high or suffering a larger decline. Therefore, closing a position early may mean making profits in advance, or it may mean admitting a loss and stopping the loss. The expiration date is just a "deadline" but it is by no means the only time to exit. The Wheel strategy (The Wheel) flexibly connects two legs into a loop A fun way to play is to connect Sell Put and Sell Call end to end, which is the classic "wheel strategy": Step 1: Sell Put on a stock you are willing to hold for the long term and collect a premium. No order received → Repeat Sell Put and continue to collect premiums. Until the takeover (takeover of shares) → You now actually get these 100 shares at the cost of "exercise price − total premium received". Step 2: Make a sell call on the 100 shares in your hand, collect the deposit, and use it as "rent". Not bought → Repeat Sell Call and continue to collect rent. Being bought (the stock price goes up) → sell at the exercise price and earn the price difference + the premium collected along the way → go back to the first step and the wheel continues to turn. Ideally, you would cycle continuously between "collecting premiums at a low level and waiting to receive goods → collecting rents and waiting to sell during the holding period", collecting money at both ends. ⚠️But the wheel is not a perpetual motion machine: if the stock keeps falling and you take over a hand of goods that continue to depreciate, the premium may be a drop in the bucket. Therefore, the wheel is only suitable for targets that you are optimistic about for the long term and are really willing to hold. Summary: Four One-Leg Strategies At this point, the four single-leg options strategies have been explained: Previous article · Single-leg option buyer: Buy Call (pay a deposit): Spend a small amount of money and use leverage to bet on big gains. (Risk: Misreading and getting to zero, being worn to death by time) Buy Put (Buy Insurance): Buy downside protection for your position. (Risk: Misreading and getting to zero, being worn to death by time) This article · Single-leg option seller: Sell Put (collect protection fee): Receive good assets at a discount and collect money while waiting. (Risk: Taking over junk stocks and buying bargains halfway up the mountain) Sell Call (receive deposit): Collect rent and blood for the spot in hand. (Risk: Missing out on the sharp rise in the market, taking a big shot in the bull market) The buyer and seller of single-leg options are like two sides of a coin: the buyer has limited losses.

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