Selling stock options?
Stock is 50€, i sell option for much lower strike like 20€(little chance of hitting that level), do i get money every day from time decay?What happens if the stock go agaist me? Am i losing money or do i lose money only after it hits my strike price?
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If you sell some options you get all the money paid for the options.
There is no daily cash flow.
If the buyer does not exercise the option then you made that much.
f the buyer decides to exercise the option you have to provide the stock to them at the 20 cent price and you have to pay whatever the market rate is for the stock when you actually buy it.
The 50 cent stock price is irrelevant except that it should factor into the price paid for the option. As the option seller, the price that is most important to you is what you pay when you actually buy the stock to deliver – if the buyer decides to exerecise the option you sold.
It is possible to engineer a swap with daily cash flows, but an individual is unlikely to have the resources necessary to manage such a transaction.
Since you are pricing in euros, are you trading in Europe? U.S. options have American exercise, that can be exercised at any time until expiration. It makes the strategy slightly different.
If you are selling a 20 level call when the stock is at 50, you will have very little premium, and your return will be minimal. The option will trade just over 30, but for very point of decline in value, the stock you hedge with will also decline. The stock will be called at expiration, and you will have to deliver.
Better to sell a just out of the money call with a short expiration against 100 shares of stock. If the stock goes up, you still get the premium.
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