Option selling is a strategy in which an investor sells an options contract, which is a derivative agreement between two parties to sell an underlying asset at a defined price on a future date. The seller of an option is also known as the writer of the option. The seller receives the option premium upfront and hopes that the option expires worthless, allowing them to earn cash from the sale of options. Selling options can help generate income, and option sellers benefit as time passes and the option declines in value. This is because selling options is a positive theta trade, meaning the position will earn more money as time decay accelerates. However, selling options can be risky when the market moves adversely, and there isnt an exit strategy or hedge in place.

Option sellers want the stock price to remain in a fairly tight trading range, or they want it to move in their favor. Understanding the expected volatility or the rate of price fluctuations in the stock is important to an option seller. The overall markets expectation of volatility is captured in a metric called implied volatility.

Selling options involves covered and uncovered strategies. A covered call, for instance, involves selling call options on a stock that is already owned. Selling options is slightly more complex than buying options and can involve additional risk. Before selling options, several decisions must be made, including what security to sell options on, the type of option (call or put), and the expiration date.

In summary, option selling is a strategy in which an investor sells an options contract to generate income. The seller receives the option premium upfront and hopes that the option expires worthless. However, selling options can be risky when the market moves adversely, and there isnt an exit strategy or hedge in place. Understanding the expected volatility or the rate of price fluctuations in the stock is important to an option seller.