Sell Before You Buy"What do you mean, Sell before you buy? Most everyone is comfortable selling something after they have bought it. People do it with houses, cars, stocks, and almost any other personal item. In fact, it is the basis of much business and commerce that we are familiar with. But it is also commonplace to sell something first and buy it back later. This is a concept that you need to be comfortable with if you are thinking of selling options. The safe options selling techniques outlined on this website involve this very concept. In explaining this concept to people, I have come to understand that it is not always intuitively obvious. So, you may need to think about this at first. When you sell a call or put and then later let it expire, you are selling before you are buying. “But wait a minute“, you say: "I didn’t buy it later, I just let it expire“. Yes, you are right, but in effect you bought it back for zero dollars. (In fact, when you or your accountant fill out your tax forms, the price you acquired the option will go in a $0, assuming you just let it expire) Of course, you don’t have to wait for the option to expire, you can buy it back at any time. Depending upon what you pay for it when you buy it back, you may have a profit or a loss. It may be helpful to think of other situations when you sell something you don’t already have or own. Stocks themselves may be “sold short”, that is sold and then bought back later, even though you did not own shares when you sold them. Also, farmers often sell their crops for future delivery at a set price, even though the crops are not yet ripe and harvested. Some clever salespeople actually make a sale to a customer, then go out an but the item at a lower price they sold it for, and then deliver the product. “Sell before you buy” may be a foreign concept at first, but it is the woven into the very essence of successful option selling, whether you are selling covered calls, selling cash-secured puts or using some advanced options selling technique. Be sure that this resonates with you!
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