What Is Selling Options? (Beginner’s Guide to Selling Puts & Calls)

Rise
Sep 11
5 min read

Updated: Oct 10

What Is Selling Options?

Have you ever wondered what it means to sell options? I would guess the answer to that is YES, considering you somehow found your way to this article. Well, good news! We’re going to dive into what it means and why you might want to be learning and using this strategy.

What Does It Mean to Sell an Option?

This is a question we get asked a lot, which makes sense since that’s our primary focus here at Theta Daddies. Selling an option is one side of the option transaction… i.e. there is an options seller and an option buyer. The option seller is selling a binding contract detailing what the option buyer will get if a stock moves to a certain price by a certain time. Most people start dabbling with options buying them but the real wins come from selling them. Buying options are a form of gambling whereas selling options are more akin to being the casino. The casino doesn’t lose over time (else they would go out of business).

What's The Difference Between Selling Puts and Selling Calls:

Same as buying options, there are two types of options that you can sell: calls and puts.

Selling a call means you own at least 100 shares of a company and sell the bet to an option buyer that the company won’t go above a certain price (strike price) by a certain date (expiration). If it does, you will sell those shares to the option buyer at the strike price.

Selling a put means you have enough cash to cover 100 shares of a company that you don’t currently own to an option buyer. You are betting that a company won’t go below a certain price (strike price) by a certain date (expiration). If it does, you will buy 100 shares of that stock at that strike price.

Premiums: How Option Sellers Get Paid

So why would you do this? Why sell an option at all? The reason is simple: CASH MONEY!! You get paid what’s known as a “premium” for selling an option and this premium can add up. Depending on the popularity of the stock and the volatility (and some other stuff), the premium can range anywhere from 0.25% to 5%+ the value of the collateral (either shares or cash) you are selling the option on. If you annualize this… we’re talking BIG bucks over time. Imagine what 1% a week nets you? Wait, you don’t have to imagine it… here it is!! (Courtesy of Theta Daddy server member DirtTurtle)

Key Benefits of Selling Options

Why Do Some Traders Prefer Selling Over Buying?

The beauty of selling options comes from the fact that you get paid that premium that we just talked about UP FRONT when you sell the option. That means you are actually choosing your profit when you sell the option, before you ever sell it. You know what you’re going to get paid and you can plan on that money which can be used for whatever you’d like to use it for.

Income Generation and Probability Advantage

Because of the fact that you’re getting paid up front AND you choose your terms for profit, assuming you follow our 5 Golden Rules of Wheeling you essentially always make money using this approach because you wouldn’t sell a losing position unless you’re a masochist. Whereas the option buyer has a low probability albeit higher potential for profit on their side of the trade. Buying an option is high risk high reward potential, so the option seller is of course low risk and lower but defined reward.

How to Define Your Max Profit and Loss in Advance

Now that we know we are defining our profit ahead of time, what exactly does that mean? Here’s an example:

Last week I sold an option on my 100 shares of RDDT at a strike price of $225c expiring 8/29/2025 for $3/share in premium
- I am obligated to sell my shares if the price exceeds $225 at close on Friday 8/29
- I was paid $3/share upon sale of the option, or $300 in total for a single contract
- The price on Friday closed at $225.08 and my shares were “called away” at $225. i.e. I was paid $225/share (strike price) and the shares are now in someone else’s hands.

In this example, I was paid $300 in total for selling my shares at $225. My cost basis on the shares was $220 so I net $5/share in share appreciation + the $3/share in premium for selling the contract. In total, I net $800 per contract, which is a 3.63% return on my money, in just a week! If I were to do that every week, that’s over 500% returns annualized! Crazy, isn’t it?

Flexibility in Bullish, Bearish, or Sideways Markets

Maybe the best part of this strategy is that it works in most market situations. In fact, as long as you’re selling options on stocks that you’d like to own, following our first of the Golden rules, you’re almost always feeling great after selling an option.

Bullish markets: you risk having shares called away, or what I like to call: MAX PROFIT!! There is nothing bad about this happening since we chose our profit up front however people sometimes feel FOMO if a stock they are selling covered calls on runs up like crazy. But more often than not, the stock doesn’t do that and you still get paid.
Bearish markets: in this case you can look at the premium paid as a reduction of your cost basis. In my example above, if RDDT dropped in value and I didn’t have shares called away, my cost basis of $220 could now be looked at as $217 after being paid the premium for selling the option. Downside protection is a real thing!
Sideways markets: This is probably the ideal situation if you don’t really want your shares to be called away or to have puts assigned. Essentially, you just collect premiums continually while selling options in a sideways market.

Popular Option Selling Strategies

So what are the most popular Option Strategies to use? Good news, we’ve already covered most of them!

Covered Calls

Here’s where we sell options on shares of stock we already own, receiving premium in exchange for the potential to sell them at an agreed upon price that we choose when selling the contract.

Cash Secured Puts

Cash secured puts (aka CSPs) are selling options on a stock that we don’t own but have cash set aside to cover in case we get assigned the shares should the stock price go below the price we choose when selling the contract. Again, we receive the premium up front when selling this contract.

Credit Spreads and The Wheel Strategy

This strategy is simply combining the previously mentioned Covered Calls & Cash Secured Puts in different ways. Rather than make your head spin, stay tuned for more information on these strategies in future blogs by signing up to our newsletter! We will continue to add content every week explaining exactly how to get better at using these strategies.

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FAQ - Selling Options

Everything sounds so complicated when you first read it but I can assure it, it is not that complicated! In fact, we offer a 6 Weeks to Sell your First Option course for new members of our Theta Daddy Discord: https://discord.gg/thetadaddies

What does it mean to sell an option in trading?

Selling an option means you're taking the opposite side of someone buying it. You earn a premium upfront in exchange for the obligation to buy or sell shares if the contract is exercised.

Is selling options profitable?

Yes, many traders use option selling strategies like covered calls or cash-secured puts to generate steady income with defined risk.

What is the difference between buying and selling options?

Buyers pay a premium and have the right (not obligation) to exercise the contract. Sellers collect the premium and have the obligation to fulfill the contract terms if exercised.