Trend indicates direction of movement of underlying.
It will not indicate how much the underlying moves.
It is also not guaranteed that prevailing trend continues.
When one buys call, he can make money only when underlying surpasses the strike+premium amount, within expiry period.
Again this is not guaranteed.
Premium also does not remain same, but goes on eroding as time lapses.
When one sell a put when trend is up,there is a likelihood of underlying not falling through the strike sold.
If underlying moves up or remain same or moves down a little bit so far it doesn't surpasses the sold strike, there is possibility of profit.
It is also not guaranteed that underlying will not crash. To safeguard ourselves we hedge, buy a lower strike. If underlying falls through the sold strike drastically the hedge will protect us by off-setting our loss. We have to bear the risk equal to amount of difference between sold strike and hedge strike minus premium collected.
As we are selling support(max open into) put, there is a probability of profit more in this type of trade.
It is presumed 80% of times we will win.
So we will earn slow and steadily, month after month.
I am not a professional option trader.
This is only my view point.
It may be wrong.
So take your own decision.
I am drawing some strategy and putting up in trading diary hoping it will be corrected or fine-tuned by experienced persons.
It will not indicate how much the underlying moves.
It is also not guaranteed that prevailing trend continues.
When one buys call, he can make money only when underlying surpasses the strike+premium amount, within expiry period.
Again this is not guaranteed.
Premium also does not remain same, but goes on eroding as time lapses.
When one sell a put when trend is up,there is a likelihood of underlying not falling through the strike sold.
If underlying moves up or remain same or moves down a little bit so far it doesn't surpasses the sold strike, there is possibility of profit.
It is also not guaranteed that underlying will not crash. To safeguard ourselves we hedge, buy a lower strike. If underlying falls through the sold strike drastically the hedge will protect us by off-setting our loss. We have to bear the risk equal to amount of difference between sold strike and hedge strike minus premium collected.
As we are selling support(max open into) put, there is a probability of profit more in this type of trade.
It is presumed 80% of times we will win.
So we will earn slow and steadily, month after month.
I am not a professional option trader.
This is only my view point.
It may be wrong.
So take your own decision.
I am drawing some strategy and putting up in trading diary hoping it will be corrected or fine-tuned by experienced persons.