David Jaffee

The Biggest Problem & Risk with Selling Options

David Jaffee of typically reserves his deep thoughts for his trading course, phone calls with students, or in his trade alerts. 

However, while this topic is best for experienced traders, David Jaffee is sharing his knowledge on the biggest problem with selling options to help better prepare you for trading options. 

David Jaffee has found that the biggest problem when selling options is that you really shouldn’t trade at all when many other people are making money. 

The reason for this is that when many other people are making money, there is generally a sense of complacency in the market and the market tends to be going up. 

As a result, volatility is really low. During periods of low volatility, the amount of money that you are going to collect when selling options is also going to be extremely low.

This can make it very difficult to sell options, and collect a little bit of premium, when the market is going up every single day because you would make more money by being long stock. 

The problem with this thinking is that when you sell options you’re able to make money when the market goes up, when the market is flat, and when the market goes down.

However, when you are long stock, the only way that you’re able to make money is when the market is going up. 

When the market is going up, and you’re collecting a small amount of premium, you may inherently feel that you’re missing out.. 

As a result, during periods of low volatility, many traders have a tendency to trade too large in order to compensate for the lower amount of premium that they are going to collect.

However, this is a very bad trading strategy. 

In September of 2021 we experienced two or three days where the VIX increased by around 50%. During those days, your existing positions are going to show you a loss. 

If you start trading really large when the VIX is low, during periods when the VIX is trading at about 15, then the VIX can double in price and trade to about 25 or 30 in one or two days.

If the VIX expands to 25 or 30, then almost all of your existing positions are going to end up showing you a loss and you’re going to allocate capital towards defending those positions instead of opening up new positions.

The biggest problem when trading options is that you are going to be tempted to trade often and trade large during the exact time when you should not be trading large and trading often.

The reason for this is that during periods of complacency, long stockholders are going to be making money and the market is going to be going up and hitting new highs. 

You are not going to want to feel like you’re missing out. As a result, you’re going to be trading larger, which is precisely the wrong thing to do when volatility is low.

As of October 25th, the VIX was trading at about 15 and the market was relatively close to its 52-week high.

So what’s the solution? What is the best way to keep up with the market and to make a lot of money?

The answer is to be disciplined and patient.

David Jaffee recommends trading small and taking advantage of a few outlier moves such as PayPal, which was recently down around 40%, Facebook, which was also down around 20%, and Amazon, which was about 10% or 15% off its 52-week high. 

Besides those three underlyings, and potentially Intel as well, David Jaffee says the best thing to do is to trade relatively small, especially considering that the VIX is trading around 15. 

You have to accept that during periods of low volatility when complacency is high, you have to train yourself to not give into the temptation to keep up with people who are utilizing different trading strategies.

Remember that during times when the market is flat or during times when the market is going down, you are probably going to significantly outperform them. The only time that they’re going to outperform you is when the market is relatively euphoric and it’s constantly hitting new highs and volatility is extremely low.

During those time periods, you, as an option seller, should not be trading very often and you definitely should not be trading a large number of contracts. 

David Jaffee recommends training yourself to be disciplined and not trade much during times of low volatility. You have to remind yourself that your time will come, and it will.

As Jim Rohn once said, “We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.”

If you train yourself to be disciplined, you should be able to achieve annual returns of about 35% to 40% a year. 

Learn more about selling options and practicing discipline with trading by visiting

Enter your email address and receive over $400 of valuable free training.

Leave a Reply