Selling Put Options for Monthly Income (In-Depth Guide)
ฝัง
- เผยแพร่เมื่อ 15 พ.ค. 2024
- Learn the ins and outs of selling put options for monthly income with a performance study in AMZN.
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==== Chapters ====
0:00 Download This Video's Presentation PDF (Link Below)
0:33 Buying vs. Selling Put Options
2:58 Short Put Trade Example in AMZN
5:46 Short Put Loss Example in AAPL
7:13 Exercise & Assignment
10:11 Short Put Margin Requirement & Return on Capital
11:17 Selling Put Options in AMZN (Performance Study)
13:38 How to Reduce Risks When Selling Puts
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===== Summary =====
In this video, we'll quickly walk through the essential things you need to know about selling/shorting options for monthly income.
The short put options strategy (selling puts) allows traders to make money as long as a stock remains above a specific price (the put's strike price) over time. Because of this, the stock price can go up, sideways, or slightly down and the strategy can make money, giving it a high probability of profit.
If the stock price falls significantly during the trade period, the short put trade will lose money, but not as much as buying 100 shares of stock at the initial trade entry point.
If assigned on a short put, the trader will buy 100 shares of stock at the put's strike price, and can hold the shares indefinitely, or sell them.
In the video, I highlight a monthly put-selling strategy in AMZN to highlight the potential profits and losses the strategy can experience.
Since it is a bullish strategy, I do not recommend shorting puts every month in a down-trending market/stock. I would personally wait for a strong support level (look to the weekly/monthly time frames for the strongest levels) to begin selling puts, and ideally, have short-term moving averages above longer-term moving averages (indicating a bullish trend).
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Disclaimer: Nothing contained in our content constitutes a solicitation, recommendation, promotion, or endorsement of any particular security, other investment product, transaction, or investment. Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Past performance is not necessarily indicative of future results. I am not a financial advisor. The ideas presented in this video are for entertainment purposes only. You (and only you) are responsible for the financial decisions that you make.
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✅ [Free PDFs] Selling Puts for Monthly Income + Options Trading for Beginners PDF (170+ Pages): geni.us/options-trading-pdf
Do you sell puts each month? What are your thoughts on this strategy? Also, let me know if you have feedback on this video. I'd appreciate it!
-Chris
Glad you are still making content, Chris. Your video on options for beginners was great. You explain strategies exceptionally well.
@@kevinvint5249😊😊😊🎉;
¹😊😊😊😊😊😊😊😊
great content as always ! hard to believe its free ur channel is literally a hidden gem . people sell there so called trading course which are not even close to ur content !!! keep it up
Thank you for the comment!
Thank you Chris!
Love your content and I've been following you for a few years now.
I've join your course on Teachable as well!
Thank you!
Thanks so much! I'm glad you're enjoying all the stuff I create! Comments like yours keep me going. 🙏
@@projectfinance I’ll be there to cheer you on! I’ve learnt so much from you and find myself coming back to some of your videos because it’s so easily understandable. I love how you break down complex strategies easily and explain it to lay people such as myself.
Thank you again for these invaluable content!
Great video as always. Thanks Chris. When I sell PUT, I usually don't get a good reward/risk ratio. But I always try to make sure that the probability is on my favor.
Thanks! That’s the nature of the strat. Limited profit and high risk. It’s wise to be picky with entries for sure
Well done, Chris. Thanks for the info!
That video was great! Your visuals have come a long way!
-Evan
Thanks Evan! Your feedback is always appreciated!
Thank you for explaining this in detail. Im new to investing and felt so lost. This was excellent 😊❤.
Wow, so well explained!!
Thank you!
Looks like weekly put options are more profitable
and less likely to have a dramatic move against your position.
Also, buy back your option when the price is 10% of what you
sold it for and you gain some additional time value on the
next sell cycle.
of cause responses are positive. You give a lot of valuable information to the people.
Thanks for the comment and view
Great video. I’ve been selling cash secured Puts when a stock I like happens to be at a historically low point. I bet it’ll drop lower, make some premium and if I’m assigned then I just picked up a stock I like anyway. Then it’s off to selling covered calls. Don’t make it too complicated but do keep an eye on technicals.
Love that mentality and approach. You basically win either way!
Do you only do this for high value stocks or would you do this for smaller stocks also? Just wondering what is your selection criteria for stocks. Great strategy and hence want to learn.
@@user-jd9vg1cc2d
Blue Chip. I’m too lazy and ignorant to tackle high volatility stocks.
Focusing on dividend producing stocks using the method described here gives added potential of gaining while waiting for the stock price to go back up.
Disney comes to mind
Hello Chris, thanks for the video I totally agree with all you say and learn a lot. Where I found more difficulty so far was to understand how to use my capital (money management) on my option trading broker ( I am on tasty) let's say I have got 5000usd, how much should really use to open positions? 50%?
Have a nice day. Federico
Awesome video!
Thank you!
Hi Chris. Thanks for the good video. Quick question.
If I sell a long put for ETF if the price going down under strike price situation before expiration date: can buyer exercises the contract early in US option rule? I keep hearing different answers about the ETF option.
Thanks you for you time.
I enjoying your video.
For American-style options, which is the case for SPY/QQQ/AMZN/AAPL etc, then yes, exercise before expiration is possible.
European-style options do not have early-exercise abilities, and can only be exercised at expiration. Though most European-style options I'm familiar with are actually cash-settled, so there's no exercise/assignment at all, they just expire with the cash value (if any).
With that said, if you short a put on a stock and the stock dips below your short put strike price, you don't need to worry about assignment as it's not going to happen right then and there. You have to keep an eye on the option's extrinsic value. If the option is ITM with very little extrinsic value, then the likelihood of assignment increases. Generally, you don't need to worry about early assignment unless your short option is deep ITM before expiration, or ITM *very* close to expiration.
Check out my video "why options are rarely exercised" th-cam.com/video/PsZsqiBFnmo/w-d-xo.html
Chris,
Thank you for another great explanation with outstanding graphics.
Since time works for you when you but options and against you when you sell options, does it make sense to sell options with shorter expiration dates?
Thank you!
Selling short-term options can definitely be beneficial from a rapid time decay perspective. However, since a stock's expected move over a short period of time is smaller than the potential/expected move over a larger period of time, you will need to sell a strike price closer to the current stock price to get decent premium. This means any short-term surge can result in your option becoming ITM.
There's a trade-off between the time to expiration and how far out you can get with the strike price to collect a good premium (which is subjective and depends on what you're looking for).
Thank You@@projectfinance
awesome content
Thanks for the video! In your opinion, would this be part of wheel strategy? I haven't seen you do a video on wheel strategy.
Yes, this is part of The Wheel strategy though in that case assignment is part of our plan so we can then sell calls against our positions. The very important thing to remember about The Wheel is to trade good companies with a good earnings track record! Stay away from meme stocks and cheap speculative stocks!
@@TakingTheRedPill69 Though usually the established stocks cost much more. :(
@@nicktpb True, you definitely need some cash to push around for The Wheel strategy because of the possibility of assignment. But I love The Wheel because when done right its low risk and I can sleep at night 😴
Thank you 😊 been watching your vids for a few years now.
Have a question about the strangles Sosnoff at Tasty puts on.
Whenever a stock runs (up) I know he’s losing a bunch on the call side. It’s really not a safe strategy to teach regular people. Would you agree?
Thanks for watching! I just saw Tom the other week for the first time in years! Awesome guy. I do not recommend shorting strangles or straddles due to the undefined risk. Tom has a huge account so he can short undefined risk strategies and risk a super small % of his account even if the trade blows out. I recommend always trading short call spreads if one is going to sell calls since it is safer.
Thanks Chris!
Would be interesting to know the loss on a trade like that. Sounds like a proper paper trade challenge.
Hey Chris, great content! I would like to test this strategy but I can't find any platform that can backtest this strategy with historical data. Do you have any suggestion which platform I can utilise to backtest strategies?
Thank you for the feedback! Hmm I would look into something like OptionNET Explorer for really granular data (15-minute, daily, P/L chart visuals and projections, complex order/adjustment tracking). It is somewhat expensive but well worth it for a period of time. Here is a link with discounts if interested: geni.us/OptionNET
Other than that, I do all my backtesting with historical data I've purchased from the Cboe and I write Python to simulate the positions and P/L.
Hi Christ do you have in person course or zoom lesson that i can learn? im from Illinois.
Wow.. this is by far the best channel on TH-cam for option trading... very well done.. i'm subscribing 👍🏽👍🏽
Thank you! And welcome aboard! Many more videos to come!
Thank you ❤️
You’re welcome 😊
I would suggest having the cash to take up the assignment else stick to put spreads. Not everyone has the capability to pick up 100 shares of amazon every month. I think choice of stocks should be those that are $25 and below.
I agree 100%. Working on a put spreads video as we speak.
You don't have to buy it every month. You sell a pcs once, and then when you're assigned, sell calls. It isn't like a spread where you lose your money if your wrong. You just sell calls.
You just have to pick an Eggselent stock or ETF@@S1lv3rdo7
you don't have a choice, you have to have the cash available to cover 100 shares at the strike price in your account or the brokerage account won't let you sell the put. unless it's a spread
Small account , what are good stocks to try this out with maybe 3-5k?
Do you try to sell puts when the price of the stock is at the lower support or bollinger band ?
Yes that can be a sound strategy. I would look for support levels on longer time frames (daily/weekly/monthly) and use those as guides for short put / put spread entries. It's never a sure thing, but you can use technical levels/moving averages to pick entry points.
12:58 I'm a long time fan, but the strategy profits because the stock you bet on grows. If the stock doesn't grow you lose a ton. A small dip at the end blew away half of your entire profit with just a single drop
Right, that's why at the end I tried to add tips to avoid big drops like that as best as we can even though we never know exactly what will happen next in the markets. I'm going to do a follow-up with the put credit spread to reduce that loss potential.
I thought at expiration the option buyer exercise since the buyer has the right but not obligation. Similarly seller is assigned since the seller has the obligation not right to sell or buy the underlying
Yep, that part of the video wasn’t clear. I believe when he said exercise the put, he meant let the short put be exercised since the stock price was below the strike. The option seller cannot exercise the option.
Thanks for hopping in! I appreciate the feedback too. That was a tough section. Exercise and assignment are always tricky to present for me!
I’ll believe it when someone shows live trades and decision making.
which platform can be used for selling put options?
Any options trading brokerage where you have the appropriate trading privileges. tastytrade, thinkorswim, webull, fidelity, robinhood all have that as an offering.
Some brokerages will give you a harder time approving you for the options trading privilege needed for selling put options.
I use tastytrade, which has an "all-included" margin account. So if you apply and are approved for the margin account with them, you'll have full options trading privileges. Check it out and if interested, here is a page with current funding bonuses that also supports the channel: info.tastytrade.com/projectfinance
Can I sell the option contract when the value is near total zero of that particular contract? I allways fear exercising them over expiration.
Do you mean closing the contract (buying it back) when it is nearly worthless?
@@projectfinance I mean when you buy a call for example. I’m newbie with options and I never sold options, only bought calls or puts. But sometimes I get out to fast because I’m afraid of price falling to zero, and never get possibility to get out.
@@Victorluca1290you can’t buy or sell an option for zero. Yes, it’s wise to close the position when the option is close to zero especially a spread as bad things can happen after market close.
i think you mean roll over or roll down to new expiration date?
Looking for PDF to follow presentation..... Where is it ?
www.dropbox.com/scl/fi/k7ecmiqb69n3z1uch00qa/Selling-Puts-for-Monthly-Income-Explained.pdf?rlkey=hudrd2wi8umizobgfwoy0j87d&dl=0
13:17 it looks like holding 100 shares would net peak ~5k while the strategy peak netted 2k~
What is a strike price?
The price at which an option can be converted into stock. A puts strike price of $110 means if the put owner exercises the option, they will sell 100 shares at the strike price of $110. Check out the options for beginners PDF in the video link for in depth explanations of all these concepts, or my three hour video here on TH-cam. Sorry I missed this point in the video!
What is really missing in your video is to mention that it's possible to roll the option when it comes ATM. Rolling a week or two keeping the same strike price will most oftenly collect a net credit and avoid assignment. It makes logical sense to do so when possible, and it makes a big difference in the selling puts strategy. You are almost never assigned that way.
It took me too long to find someone else talking about rolling! It’s the most important part of selling options in my opinion
Too many people getting assigned at losses when rolling would have saved the entire trade
I think my margin req for selling naked put is way higher, which is basically the max loss. Your example for selling AMZN put seems way too low. If strike is 145, max loss would be around 14500, how come your margin est is only a couple thousand dollars?
If selling naked puts in a margin account the margin won't be the max loss. It'll be the max loss if selling in an IRA or non-margin account.
From the tastytrade brokerage help center website:
The margin requirement for an uncovered put is the greatest of the following calculations times the number of contracts times the multiplier (usually 100).
1) 20% of the underlying price minus the out-of-money amount plus the option premium
2) 10% of the strike price plus the option premium
3) $2.50
The premium received from the sale of the short put may be applied to meet the initial margin requirement. However, if you sell a put in a cash account, the put must be cash-secured. Please click here to learn more about selling puts in a cash account.
I sell puts after a good stock has bad earnings or over reacted downside move.,
Smart!
Why not rolling over instead of accepting loss?
Rolling is essentially taking a loss and opening a new position.
@@zdzczx7660 covering that loss with new equal premium for further expiry date, deepends how you look at it, glass half empty or ...
Right, rolling is closing the first option (taking the loss) and opening a new position, so there's no way to not accept the loss in that scenario as @zdzczx7660 pointed out!
There's probably a better way out there to get a margin call, but nothing is coming to mind... 🤣
selling put option is a dumb idea. by design, you are only compensated if the volatility is heightened (meaning downward volatility). so you are open to be fucked.
You make money until the day you lose big money. Buy and hold real stock. Don't fall for it
Why?
@@christopherquintero6910 you can have 90% of the operations with profit and lose it all in the 10% that go south. And they will go South at a certain point. Or the reverse, stocks will skyrocket and you will be left with the small premium, missing on the gains of the stock. Just have a look at Meta graph this year as a simple example. Options are cheap insurance for large investors. We take the risk, they take the profit
And that is why you only sell puts on stocks you don't mind owning at a price you don't mind paying. In the most unfavorable position, you will have paid a low price on a stock that still fell lower. This is the same outcome of potentially buying at the wrong time but with the added benefit of cash reward as the price trades sideways or rises.
@@tylerlawrence7584 and this is why Warren Buffett famously called options "weapons of mass destruction". Buy what you want, when you want, at a price you know. Or else, keep collecting "feel good" short term small profits (premium) , for very large long term losses.
Sounds like some1 was selling Puts on garbage volatile stocks trying to capture that high premium. Been there done that🤣😂😁
Dingbat, the video is entitled "Selling put options...". Why are you spending the first 10 minutes addressing the buying of puts? You're just confusing the whole thing. You're muddying the waters and making the whole thing seem more complicated that it is. I trade options and even I'm having a hard time following.