So, if you have lots of buyers and few sellers then you can potentially earn a great premium. In historical terms this premium is relatively high, and is indirectly measured by something called the Credit Suisse Fear Barometer (CSFB).

We won’t go into this measure in detail but it has been at historical highs over the last 12 months. See below. When this measure is high then put options are relatively expensive and therefore the premium you can earn by selling them, is high.

How To Beat a Falling Market

Credit Suisse Fear Barometer

The price of an option depends to some extent on volatility. If you want some portfolio protection from rising equity volatility then earning a premium from options will likely do well when volatility increases.

The following article was republished from Actuary on Fire.