Morningstar Thinks Option Selling Is Great!

So I got an email last night from Morningstar (since we get their research from time to time) saying that they thought the best strategy for options traders is selling options. Honestly this blew my mind to hear such a huge company say this. Here is what the email said:

What strategies make the most sense?
Right now, as investors panic, option prices are being bid up to irrationally high levels. As a result, it makes more sense to be selective option sellers than buyers–option prices are high and undervalued companies are relatively easy to find. It’s classic “sell high, buy low” investing. Sell options when they’re expensive and buy them when they’re cheap, and be bullish on undervalued stocks and bearish on overvalued ones.

Can selling options really put me ahead?
While stock investors look for the most undervalued companies to buy, option investors profit from market uncertainty regarding a company’s value (also known as implied volatility) to generate income. The market is full of companies trading at discounts to their long-term value. So we’re seeing opportunities to sell puts, where you can get paid to lock in an acceptable price over a predetermined period of time. This is selling downside protection to the market for cash today and provides a cushion to the depressed stock price for the option seller.

So, as option sellers, we get paid to execute investment discipline, and to make money from other investors’ fear. Whether the stock rises, the fear subsides, or time passes and the stock falls by less than the amount we were paid for the insurance, we make money.

Couldn’t have said it any better myself!