Ten Steps to Choosing an Option to Sell
- Rise
- May 4
- 2 min read
Updated: May 6
Feeling overwhelmed looking at an options chain? Here’s my 10-step process to narrow it down to the right option every time.
1. Pick the Stock First: Only consider stocks you’ve done FA research on and would be comfortable owning. The option is secondary to the stock. 2. Check the Chart: Identify the current trend. Is the stock above or below its key moving averages (20EMA, 50SMA)? Where are the nearest support levels? 3. Check IV (Implied Volatility): High IV rank (above 30-50%) means premiums are elevated — a better time to sell. Low IV = stingy premiums. 4. Choose Put or Call: Selling a CSP if you want to potentially buy the stock. Selling a CC if you already own the stock. 5. Choose the Strike: For CSPs, sell below key support. Start with delta 0.20-0.30. For CCs, sell above key resistance, above your cost basis. 6. Choose the Expiration: 14-45 days out is the sweet spot for theta decay. Weekly options offer flexibility; monthly options offer higher premiums and less management. 7. Check the Bid-Ask Spread: If the bid is $1.00 and ask is $2.00, that’s a 100% spread — too wide. Aim for spreads less than 20% of the option price. 8. Calculate Your Return: Premium collected / (Strike Price x 100) = % return for the period. Annualize it to compare across different trades. 9. Check for Earnings: Never sell an option that expires AFTER an earnings date unless you intentionally want the IV expansion. 10. Place a Limit Order: Enter at the midpoint of the bid-ask spread. Set a GTC buy-to-close at 50% of premium. Now you’re done — let theta work.
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