Our Philosophy
Our Philosophy Hello Smart Option Sellers! As we get started with our new service, many of you who've been with me before know me and know my message. But it's always good to get a refresher on what we aim to achieve with The Smart Option Seller. We do one thing here - we sell put option contracts. Why do we sell put option contracts? Because it is one of the highest (if not THE highest) ways of achieving a high probability of success in the market. That high probability of success translates into more profits for all of us. In order to make money in the stock market, a stock buyer needs to get the direction correct, yes? If you buy a stock and it goes up, you make money. If you buy a stock and its price goes down, you lose money. Simple concepts. But for an option buyer, it's even harder than that. Why? Because not only does an option buyer need to get the direction of the stock correct, but they also need to get the timing of that move correct as well. This goes for both call option buyers and put option buyers. Every option contract has an expiration date. If the stock doesn't make the intended move within that contract period, the option will expire worthless and the option buyer loses 100% of their investment. 100%! I know many of you (me included) have bought stocks and/or have stocks in our current portfolios. This is fine as we can wait until the day we croak for that stock to make the correct move if it hasn't happened by now. There is no time limit. But for the investor that chooses to lay down their bets by buying option contracts, they have to get that prediction right by the expiration date. And this is where the amateurs gets separated from the professionals. How cocky do you have to be to believe you have the skills and knowledge to be able to predict not only where a stock is going to move to, but by what date it will happen. Pretty cocky I guess. But unbeknownst by many, that cockiness turns into loss upwards of 95% of the time for option buyers, especially for buying put option contracts. How do I know? Because I've been doing this for twenty six years now, and I've seen the option buyers lose time and time again. As for us option sellers, we can put those 95% odds of winning on our side. I always like to site the statistics by the Chicago Mercantile Exchange (CME) in a study they published in 2002 in which they recorded the results of S&P 500 & NASDAQ 100 option contracts during the 1997-1999 period.
As shown in the boxes above in the last column in the three consecutive years of the study, both the S&P 500 and the NASDAQ 100 had their put options expire worthless upwards to a high of 98.3% of the time. Neither one was below 93.1% What does it all mean? It means option buyers were losers and option sellers were winners. Option buyers were holding investments that were losing on average 95% of the time. Are you kidding me! Whose side do you want to be on? My opinion is that the biggest factor contributing to the high degree of loss for the put option buyer is the "time" component (expiration date). Nobody is that good or that smart to think that they know where a stock is going to be on a certain date (expiration day). It's an impossible task, and it's the reason why option buyers fail miserably. So let's not be a part of that group. When you sell a put option contract for a specific stock, not only are you receiving upfront money (called the "premium") from the put option buyer, but you're also entering into an agreement to purchase shares of that stock at a price of your choosing. That's key, because you set the terms of what stock to buy and at what price. So as long as you choose a stock you'd be interested in buying, then this is a perfect strategy. Why not let someone pay you cash today in exchange for your commitment to buy a stock you want at a price you want. That's what we do here at The Smart Option Seller. I spend countless hours scanning stock charts, doing company specific research, checking volatility levels, comparing option prices, and then deciding which stocks are worth us selling put options on. Once that stock has been chosen, we will sell a specific put option contract on it, collect the cash, and then wait to see if we get to buy that stock at our price at expiration. For those of you who've been with me for awhile, you know that selling options becomes a waiting game. If a stock we like is currently trading at $50 per share and we want to potentially buy it at $35, we would sell a $35 put option contract and collect our upfront premium from the option buyer. At this point, we need to wait to see if it drops to $35 by expiration day in order to fulfill our agreement of actually buying it at $35 per share. Only two things can happen at expiration day: 1. The stock is above $35 2. The stock is below $35 If the stock is above $35 at expiration, the put option will expire and we just keep the money we received on day 1 of the initial transaction. If the stock finishes below $35 at expiration, we get to buy the stock at $35 and pay for it in full, but we also get to keep the money we received on day 1 of the transaction. At this point, we become full-fledged stockholders of a stock we wanted at the price we wanted. Pretty cool. Most of the time though (upwards of 90% or more), the stock never ends up falling below our target price by expiration. I try to make sure of that by picking trades that would have that outcome. And that is fine, as we'll just move on to the next trade and sell more put option contracts on either the same stock or different stocks and keep collecting more cash. We repeat this process many times over throughout the year, and just keep collecting the cash. Once we sell the put option, we pretty much wait it out at that point to see if the stock falls to our target price (strike price) by expiration. Sometimes making money is boring! But in our service, you'll find that we won't always wait until expiration day to take our profits. Nor do we need to. When trading option contracts, you can get out of a trade at any time you desire. And that's what we do. A majority of the time, we'll close out the trade well before expiration day and move on to the next trade. For us, most of our trades will last anywhere between two to five months in duration. For those of you who were Instant Money Traders (our old service), you know about my "80% Rule". This rule states that if we've achieved at least 80% of our full profit potential, we will close out the trade early before expiration day arrives. This has served us well and allowed us to achieve an overall 95% win rate. We plan to do the same with The Smart Option Seller service. How do we close out the trade early? Well, since we sold the put option as our initial transaction for a certain price, we would just need to reverse the trade and buy it back at a cheaper price. Option contracts trade just like stocks. You can buy and sell at will. And if we have a profit built up in the option, we can close it out and take profits. To some of you this might not make a lot of sense yet, but stick around for awhile and it will become second nature. Option selling is good, and that's what we do. That's all for now. Hope everyone enjoyed their weekend.
Housekeeping I plan to use this housekeeping space to give updates on website and member-related information. Some of it will remain fixed and some will be a one-time mention. 1. We now have our text messaging system in place. If you'd like to be notified on your mobile phone when a new alert is about to hit your inbox, join our text alert system by typing in your first and last name and mobile number here: You should then receive a welcome message from me. You can disregard the message that states how many messages you will receive per month. That's just for legal purposes and has no bearing on how many messages you'll actually receive from me. All other text messages you'll receive will just be a head's up that a new alert is about hit your email. For our international members, I'm working on plans to get you included for text messaging. I haven't forgotten about you! 2. All alerts will be archived on the website under the "Archive" section which you can find along the top menu of the website. If you are a new member, please use this section to read past alerts to see what we've been doing. This is a password-protected area for Smart Option Seller members only. The password to enter this area is smartoption. Please write this password down and keep it in a safe place. You will need it to access the Archives. As always, if you have any questions, comments or feedback, please let us know. Thank you! You can contact us here. Regards, Lee
Important Notice: All opinions, recommendations and content published by Smart Option Seller, LLC ("Company" or "us" or "we") are solely for informational and educational purposes, and should not be considered personalized investment advice. Your use of any investment ideas provided by Company is your responsibility and should only be made after consulting with your investment advisor and reviewing the public filings and financial statements of companies you are considering for investment. We do not receive any compensation from companies we write about. By accepting a subscription to The Smart Option Seller newsletter, you acknowledge that all ideas discussed in the newsletter are solely for informational and educational purposes and you agree to hold harmless Company and all Company employees and representatives for any investment losses suffered by you arising from ideas discussed or recommendations made in the Smart Options Seller website or newsletter. You should not make any investment decision based solely on what you read in the Smart Option Seller newsletter. The information provided is obtained from sources which we believe to be reliable, but we do not guarantee the accuracy or completeness of any such information. We are not liable for any losses suffered by you as a subscriber. Past performance is not indicative of future results. Please plan accordingly. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Company is not a broker, dealer or investment adviser. In addition, our employees may answer your general customer service questions but they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. See our full Terms of Use here
