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I chased the highest premium on the list, and it blew up

The highest premiums on any screen belong to stocks the market expects to move a lot, usually because of a big event, a crowd or a recent crash. Sorting by premium first means sorting by danger first. Here's what that cost in one example, and the order that works better.

Options guide · 9-minute read · Updated 2026-10-27

What's happening in your account right now

You opened a screener, sorted by premium, and picked from the top. The put paid far more than anything else. Then the stock fell hard, much further than you thought it could, and now you're assigned or about to be.

The premium you collected looks tiny next to the loss. You may be wondering how something that paid so well went so wrong so fast.

The short answer: it paid so well because the market thought this exact drop was possible. That's not hindsight. It was in the price.

Why the top of the list is the danger list

Option prices rise when the market expects bigger moves. That's Implied volatility. A premium screen sorted from highest to lowest is really a list of stocks sorted by how wild the market thinks they'll be.

Here's what the top of a typical list often looks like (made-up names, the kinds of reasons that show up):

Every name at the top has a reason. Very few of those reasons are good for a put seller. A Binary event, like a yes-or-no drug decision, is the worst of them: the stock doesn't drift, it jumps.

The loss, worked out (an illustration, not a trade idea)

You have $4,000 for puts. At the top of the list is a made-up drug maker, XYZ, at $10, with a decision on its main drug in nine days. Its two-week $8 put pays $0.90.

That's huge for an $8 strike. You sell five of them: $4,000 set aside, $450 collected.

The drug is rejected. XYZ opens at $3.

About half the money set aside is gone in one morning.

Now the stock near the bottom of the same list. A made-up steady company, ABC, at $40. Its two-week $36 put pays $0.40. One contract uses $3,600 and collects $40.

XYZ wins most rows. That's the trap: it usually works. The one row where it doesn't is big enough to undo many good weeks at once.

Your choices now

You own 500 shares at $8. Your cost after the premium is $7.10. The stock is at $3.

1. Sell the shares and take the loss. −$2,050, and $1,500 of cash back to use on something you'd actually own. After a failed drug decision, this is often the clearest move. Use a limit order; spreads are wide after a crash.
2. Sell some, keep some. If the company has other products, keeping a small part is a choice. Size it as if you were buying it fresh today.
3. Hold and sell calls. Calls at $7.10 or higher, with the stock at $3, pay close to nothing. This is the slowest path, and the one most likely to tie up the cash for a long time.

Don't sell more puts on XYZ to "average down." That doubles the bet on the event that just went wrong.

The order that works better

The fix isn't to never look at premium. It's to look at it last.

1. Start with a list of stocks you'd own. Profitable, understandable, busy options. See building a wheel watchlist.
2. Remove anything with a big event inside the expiry. Earnings, drug decisions, court rulings, product launches.
3. Check liquidity. Tight spreads, real Open interest.
4. Size each trade to the account. One stock's worst day should be survivable.
5. Now sort by premium. Among the names left, pick the one paying a fair amount.

And one question for any premium that stands out: "Why does this pay so much?" If you can't find the answer, don't sell it. If you can, and the answer is scary, don't sell it either.

This is the core of the wheel strategy: the stock comes first, and the premium is just what that stock pays. See stocks you'd hold vs stocks with juicy premium for the longer version.

In Canada, the same steps apply in a TFSA or RRSP. Covered calls are widely allowed there; cash-secured puts depend on the broker, and options permissions differ by broker.

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