Premium Income

Premium income is the strategy of selling options to collect the price paid by the buyer. By acting as the seller, an investor captures the extrinsic value of the option.

If the option expires worthless, the seller keeps the entire premium as profit. This is a popular income-generating strategy for those who believe an asset will remain range-bound or will not reach a certain price level.

However, it carries the risk of significant loss if the underlying asset moves sharply against the seller's position. Successful premium income strategies require careful selection of strike prices and expiration dates, as well as disciplined risk management to avoid large, unexpected payouts.