Considerations for Option Sellers

1. Underlying Asset Selection:
Just like option buyers prioritize liquid assets with high volatility for easy entry and exit, option sellers should do the same. The core element of option pricing is volatility, where higher volatility leads to higher option premiums. Additionally, options on heavily traded stocks are easier to enter and exit due to sufficient liquidity in various price levels.

This principle is particularly evident when comparing trading options in weaker markets like Hong Kong. Options with low activity make it challenging for sellers to do anything other than hold until expiry or hedge by buying the underlying stock. Even for stocks like $TENCENT(00700.HK)$ , traders often face issues such as large bid-ask spreads or insufficient depth of prices, making it difficult to place stop-loss orders. Holding Tencent, I frequently engage in covered calls to earn interest.

2. In-the-Money vs. Out-of-the-Money:
Option sellers aim to collect option premiums, so they primarily prefer out-of-the-money options. The further out-of-the-money an option is, the higher the probability of success for the seller. However, unless you intend to short or long the underlying stock, you may consider in-the-money options. Observing the Delta indicator can help with this decision. For example, when Delta = 0.1, it means there's approximately a 90% chance of success for selling the option.

Each trader should act according to their financial capacity, avoiding excessive risks that may lead to significant losses, such as with high-priced stocks like $NVIDIA(NVDA.US)$ .

3. Call vs. Put:
The choice between selling calls or puts depends on one's forecast for the future movement of the underlying asset. While theoretically, selling puts allows for acquiring the underlying stock in case of judgment errors and waiting for it to recover over time, it could be mentally challenging if the stock continues to decline without confidence in its fundamentals. Selling calls theoretically exposes sellers to unlimited risk, but with proper risk management and timely stop-loss orders, the losses can be controlled.

Therefore, selling puts requires strong confidence in the underlying stock, while selling calls only requires a short-term forecast of no significant upward movement in the stock price.

For instance, you can consistently selling call options on NVDA, choosing contracts expiring within a week to maximize time decay. My rationale is based on the recent earnings report and a sharp price increase, indicating that all positive factors are already priced in unless new applications like GPT or Sora emerge. However, it's worth noting that selling calls against the trend involves certain risks.

Both bulls and bears should exercise prudence, as the market offers liquidity from sellers, and difficulties in closing positions may arise if sellers are scarce.

Everyone should pursue their own strategy and accept the consequences accordingly.