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Short Premium: Profit Sources

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

When we sell premium, there are three ways we can make money: direction, time, or volatility. In other words, we generate profits from delta, theta, or vega. However, the certainty and reliability of each of these different sources is not symmetric. The passage of time is far more reliable than a stock’s price movement. Thus, when we are generating our return expectations for our portfolios, we should keep this hierarchy in mind. Mike, from Everyday Trader, joins the discussion to highlight some of the subtler nuances of these three profit dimensions.

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