When the market is going no where and you believe the market is going to continue the side way.
Theta decay will be your friends. By the time goes by, the theta value of option will decay. While the underline asset price doesn’t change much. The value the option is decreasing will be your profits.
Selling option spread profits when selling option at a higher price and bought it back at a lower price. Losing money when the underline asset price moves a lot making the option becomes expensive.
There are couple key success factors for selling options
- Estimate the range of where price might go (WeWave)
- Avoid big events such as FOMC ,Major U.S. Economic Reports (e.g. CPI), mega cap company’s earnings (e.g. Nvidia)
- Risk reward ratio
- Know when to take profits and stop your loss
Here is the strategy focusing on sideway market:
- Bull Put Spread: To profit from neutral to bullish price action in the underlying stock.
- Bear Call Spread: To profit from neutral to bearish price action in the underlying stock.
- Long butterfly spread with puts: To profit from neutral stock price action near the strike price of the short puts (center strike) with limited risk.
- Short iron condor spread: To profit from neutral stock price action between the strike price of the short options with limited risk.