This blog post assumes you have basic understanding of writing put options for premium.
The colored table above is a stock option profit calculator generated by optionsprofitcalculator.com. This is a visual tool for us to see the potential pay off of taking this position at this time. the profit table was generated after market close on June 26th, 2020. The table is a screenshot for selling the $42 put on for July 17th 2020 expiration for ExxonMobil stock. The numbers in each cell is the Return on investment percent. Since this is a cash secured put at the $42 strike price, we will need $4,200, and with a 2.87% return on our money, we get a credit of 4200 * .0287 = $117.00. (plus fees and commission)
When selling options for premium,which is cashflow, we have theta decay on our side, rather than trying to fight theta decay. Typically when you buy something, you want it to go UP in value, but since we are selling, we want to this to go DOWN in value, so we are on the better side of the trade.
Below is an overly simplified visualization explaining how an option price loses it’s value has time until expiration reaches 0.
