Premium selling

What this approach is

Premium selling (Premium Premium Selling) is a family of strategies that sit on the selling side. You collect the premium today in return for a conditional obligation. You profit from the passage of time, shrinking volatility and price staying outside the obligation zone. Cash-secured puts, covered calls, credit spreads and condors are all members of this family.

Its plain economics

The seller is a small insurance company: it collects small, regular premiums and agrees to absorb the rare violent event. The lasting source of profit is the volatility risk premium, the market's habit of pricing a bigger move than usually happens. It is steady income whose price is a fat tail you must never forget.

When the environment suits it

When implied volatility is rich compared with realized volatility (a wide risk premium), in sideways markets, and around events already priced in. Its worst days are volatility spikes from complacent lows, when the premiums collected are thinnest and the tail is fattest.

Hypothetical example

A seller of monthly put spreads collects 2% a month for eleven months, then loses 14% in one stormy month. The whole year's result hangs on that one month. That is the real distribution of the approach, not a flaw added to it.

Common mistake

Measuring success by win rate: a premium seller wins most trades by the nature of the distribution. The only question that matters is whether the year's total survives its worst month. Position size is the answer.

Its honest economics

Regular income in exchange for an obligation on a rare day: the distribution is deliberately lopsided. Someone who sized up because "selling always wins" met that day with a position they could not recover from. The whole craft is pricing the pay for the risk (a premium of VRP) and sizing for the worst case.

Where to see it on the platform

The strategy picker points toward the premium-collecting family when premiums are rich, and the volatility risk premium indicator measures how generous the environment is before you enter.

The VRP indicator measures how generous the pay is right now, and the calculator works out the maximum obligation for each structure.