When Is the Best Time to Sell Option Premium?

05/25/2010 12:01 am EST

Focus: OPTIONS

Joseph Hargett

Financial Analyst, Schaeffer's Investment Research, Inc.

Looking for a leg up on your premium-selling strategies? Then the table below may interest you.

Typically, it is best to implement a premium-selling strategy when the stock is range bound, trading between key support and resistance levels, implied volatility on the stock's options is elevated, and when the company is not scheduled to make waves with a pesky earnings report.

Along those lines, Schaeffer's senior quantitative analyst Alan "Rocky" White ran an internal stock filter to seek out such opportunities. Note: Support and resistance levels, in this case, are determined by peak call and put OI strikes for the June series of options. Below are the filter criteria and the results:

Criteria

  • Stock price is above peak put open interest (OI) and below peak call OI
  • Peak put OI and call OI is at least 1,000 contracts
  • Peak put OI and peak call OI combine to account for at least 30% of the stock's average daily trading volume
  • The stock's Schaeffer's Volatility Index (SVI) is greater than its 21-day historical volatility
  • Next company's next earnings report is scheduled after front-month options expire


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By Joseph Hargett, contributor, Schaeffer’s Trading Floor Blog

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