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Beginning traders often ask not when they should buy options, but rather, when they should sell them. Answering that question requires an understanding of the option itself, as well as the payoff it should generate.

An investor should sell a put option if he thinks the underlying security is going to rise. Buying a put option requires paying a premium to the writer, or the person who’s selling the put. The buyer receives the right to sell the shares at an agreed-upon strike price if the shares’ price falls. If the price closes above the strike price, the buyer won’t exercise his option. And the seller gets to keep the premium.

An investor should sell a call option if he thinks the underlying security is going to fall. The buyer pays a premium to the writer for the right to buy the underlying at the strike price if its price climbs higher. If the price closes below the strike price, the buyer won’t exercise the option. Again, the seller keeps the premium.

Many advanced option strategies require investors to sell options. They include the covered call, the iron condor, the bull call spread, the bull put spread, and the iron butterfly. Knowing when to sell is part of the strategy.

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