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indyK1ng t1_iy3fcrd wrote

What isn't clear to me is how much you made on the winning bets to actually cover the costs of the losing bets.

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PMmeGRILLEDCHEESES t1_iy3hxoa wrote

think of the premium sold as his revenue, and think of the 70,618 as his cost of revenue. the net amount is his gross profit, then you take out fees and commissions and you get a profit. the chart does ignore taxes so their net profit is somewhere lower than the 18,362 shown here

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S-WordoftheMorning t1_iy3iigx wrote

Selling options only requires that the losing bets don't underperform the premium you collected by selling the option.
Example: I decide to sell weekly call options on GM with a strike price of $15.00. I sell the option at $1 a share. One contract is typically 100 shares. So, if I sell one contract I collect $100 dollars in premium.
If the price of GM closes at or below $15 then the value of the call option is $0.00, and I get to keep the $100 in premium (minus trading commissions & fees) I collected.
If GM closes above $15, the buyer of the call option will exercise their right and I have to either buy back the call option, or sell 100 shares of GM at $15. If the price of GM stock closes at $16, then it would cost me $100 to buy back the option or sell the 100 shares at $15.
If the price of GM goes above $16, now every penny I collected in premium is wiped out and now I have to dip into my own pocket to cover the trade.
The chart says they made $18,362 in profit, which means (accounting for commissions & fees) of the original $92,100 in options contracts they sold, the seller's equity decreased enough that it cost them everything but $18,362 to cover the trades or meet their obligations to sell the underlying stock to the buyer.

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