Every option trader should be ready to sell some premium. Though individual investors should not take on unlimited risk, selling put spreads can be a great way to boost income in a portfolio. While the trader’s account is credited the notional premium sold, the trader is also responsible for buying the underlying instrument should the price move below the strike price.

The gold market has been on a rather notable bull run while the Federal Reserve has increased the money supply to historic records. After Tuesdays’ sharp correction, and forming what many technical analysts see as a bottom, gold has offered option traders a great opportunity to collect some premium income for selling the SPDR Gold Trust (NYSE: GLD) Feb 132, Feb 128 Put spread.  When you sell a put spread you sell the more expensive option, in this case the 132 put which was trading today around $2.55, and buy the less expensive 128 put, selling today around $1.30. Using these numbers you would be credited $1.25 per contract.

The purpose of buying the less expensive option is to limit your market risk and the possible losses that can be incurred should the trade go against you. In this example, your maximum loss is $2.75 should GLD trade below $128 before expiration on Friday, Feb. 18. Your breakeven point is hit when GLD trades at $130.75.

This is a more sophisticated option strategy for traders with a higher risk tolerance. Watch market trends closely and consider this a good time to take advantage of a market pause.