Options Premium Selling is a derivatives trading strategy that involves the sale of call or put options contracts to collect the premium paid by the buyer. This approach aims to profit from the decay of an option’s time value (theta decay) or from the underlying asset remaining within a specified price range.
Mechanism
A seller writes an options contract, granting the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying crypto asset at a predetermined strike price before expiration. In return, the seller receives a non-refundable premium. The seller seeks for the option to expire worthless, allowing them to retain the entire premium received.
Methodology
This strategy is typically employed by traders who anticipate limited price movement or a decrease in volatility for the underlying crypto asset. Its objective is to generate consistent income through the systematic collection of premiums. This often involves risk management techniques such as collateralizing positions or combining options to limit potential losses, as observed in institutional crypto options markets and smart trading systems.
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