Selling call option - stock analysis question

[darrenmo]

I am learning to write call options on an underlying position to generate income from option premiums.

I use Interactive Brokers and the specific strategy I use is a Buy/Write. I decide on a stock to perform a Buy/Write on by viewing Yahoo Finance.

I have been looking at the following DATA to decide on which stock to write a call on;

1. I check to see if the stock price is close to the lowest it's been over the last 6 months.

2. I then look at the "in the money" strike prices and focus on the closest one to the current stock value (that seems to provide most premium). (if stock is trading at $25.76 I will choose to sell a call option for $25.00)

3. I then look at the Put options (insurance). If stock is trading at $25.76 I might buy a Put for $24.00.

QUESTION:

What analysis should I be doing before deciding on which stock to sell a call option on?

I am a beginner and want to know the basics (please keep it very simple for now!)

Thank you.

 

[Martinghoul]

I would suggest you play arnd with stuff and read some books...

 

[QuestOptions]

I would suggest you use an Options Analyzer.

Plug in the position in the analyzer and do a "What-If" analysis on the position.

The position you have proposed does NOT make much sense based on risk to reward. You are putting up a lot of cash for possibly very small gains.

I know this because I plugged into an options analyzer (assuming the options had 180 days left until expiration with implied volatility around 38%) ...I encourage you to see it for yourself

There are plenty of option analyzers out there...Some very expensive and Some which are even FREE...

Maybe someone in the forum can suggest them to you...If you are just learning I would go with the The Options Lab : theoptionslab.com

You can trial it for free and it also a great learning tool...

 

[darrenmo]

I would suggest you use an Options Analyzer.

Plug in the position in the analyzer and do a "What-If" analysis on the position.

The position you have proposed does NOT make much sense based on risk to reward. You are putting up a lot of cash for possibly very small gains.

I know this because I plugged into an options analyzer (assuming the options had 180 days left until expiration with implied volatility around 38%) ...I encourage you to see it for yourself

There are plenty of option analyzers out there...Some very expensive and Some which are even FREE...

Maybe someone in the forum can suggest them to you...If you are just learning I would go with the The Options Lab : theoptionslab.com

You can trial it for free and it also a great learning tool...

Thank you I'll check them out.

 

[Petrescu]

Wait... How can you sell an option with a premium equal to the underlying. That is impossible. Either you're missing something or I misunderstood the question.