Times to leave the premium on the table

Most writing about selling options is about how. The more valuable skill is recognizing the situations where the answer is no, when the premium is right there and every instinct says take it.

When the premium is pricing an event

Earnings, an FDA decision, a court ruling, a scheduled vote. Implied volatility rises into these because the stock is expected to gap, and the premium on offer is the market's estimate of the gap. Selling into it is a bet that the move stays inside that estimate. Sometimes it does. When it doesn't, a stock that gaps 25% through your strike turns a $200 credit into a $2,000 loss, and there was no way to manage the position because the move happened between one close and the next open. Skip the trade, or size it as a wager rather than as income.

When you wouldn't own the shares

A short put is a promise to buy. If the company is one you've never looked at, or one you looked at and didn't want, the premium is paying you to acquire something you'd sell immediately at a loss. Every put should pass one question before it goes out: at the breakeven price, would I hold this for a year?

When the collateral isn't really there

Cash-secured means the cash is set aside. On margin, the requirement is a fraction of the notional, and it's easy to sell five contracts because five requirements fit. Assignment doesn't ask about the requirement; it delivers 500 shares and debits the full price. If a bad week would leave you borrowing to hold shares you never planned to buy, the position was too big before anything went wrong.

When the market for the option is thin

An option quoted $0.80 by $1.30 costs about $0.50 to get into and out of, on a premium of around $1.05. In a stock with no open interest you'll fill badly, close badly, and find that a roll costs more than it saves. Rich premium in an illiquid name is often just a wide spread wearing a disguise.

When implied volatility is low

At the bottom of a stock's IV range, premiums are thin. The temptation is to move the strike closer to the price to get the same credit. That's a different trade with a much higher chance of assignment, and it's how low-volatility periods end for sellers: close strikes, small credits, then a move. If the premium doesn't pay for the distance, don't shrink the distance.

When the trade would be a rescue

Selling a call against shares you were assigned at $45, now trading at $36, is fine at a strike you'd be happy to sell at. Selling the $37 call because it pays something is locking in the loss while pretending not to. Rolling a put for the third time on a stock that keeps falling is the same thing in a different costume. The question is whether you'd open the position fresh. If not, stop.

When the story is the reason

Takeover rumors, short squeezes, hard-to-borrow names with premium that looks free. The premium is high because the outcomes are wild. After a merger is announced, contract adjustments can change what you're obligated to deliver in ways that make the position awkward to manage. Unusual premium always has a reason, and the reason is rarely that nobody else noticed.

When too much is already on

Six short puts across six technology stocks is one position. The day they all go wrong is the same day. The last trade to skip is the one that would be fine on its own and is the seventh of its kind.