Tip #3 – Higher Premiums Don’t Guarantee Bigger Profits
Don’t get seduced by higher option premiums, thinking that more premium automatically translates into higher profits.
There’s a reason why premiums are high (or low). Higher premiums usually mean higher expected volatility (the propensity for a stock to move up or down) and declines could be drastic. And that could quickly put you into a steep losing position.
While there is room for error with put selling, it’s still important to have a good handle on the short-term direction to keep your put out of the money.