Generate Safe Weekly Passive Income with this Options Strategy - How to SELL PUTS for Beginners
How to Sell Puts Safely for Consistent Weekly and Monthly Income
In this video, the speaker shares his experience and knowledge on how to sell put options safely for consistent weekly and monthly income. He covers the specifics of picking a strike expiration Delta technical analysis, what to avoid when selling put options, and provides three live training examples.
Introduction
- The speaker has been trading for nine years and combines his experience with teachings from his time at Goldman Sachs studying under a Wharton professor of economics.
- He will cover how to pick a strike expiration Delta technical analysis, what to avoid when selling put options, and provide three live training examples.
- The speaker recommends selling puts on high-quality stocks that you like and would not mind owning.
Deciding on Strike Expiration and Delta
- After picking a stock that you like, decide on strike expiration and Delta.
- Pick an expiration day that is one week or one month away depending on your preference.
- If you can make $1000 a week, it's similar to making $4000 a month in terms of return.
- Selling puts with longer expirations may be riskier but also more profitable.
- When selling puts, pick strikes that are below the current stock price but still within your comfort zone if you end up owning the shares.
- Use technical analysis to help determine where support levels are for the stock.
Example Trade: NEO
- The speaker currently has a position in NEO at the $9 strike price because NEO has been as low as $8.18 over the past month.
- When selling puts on NEO, he sells 9 dollar puts or 8.5 dollar puts because he is comfortable owning those shares if they get assigned to him.
- For example, if he sells an 8.5 dollar put option with an expiration date one week away, he can make roughly $11, which is a 1% return.
- If he sells the same put option with an expiration date one month away, he can make roughly $44, which is about four times more than selling the weekly option.
Conclusion
- Selling puts safely for income requires picking high-quality stocks and deciding on strike expiration and Delta.
- Longer expirations may be riskier but also more profitable.
- Use technical analysis to help determine where support levels are for the stock.
Selling Options and Technical Analysis
In this section, the speaker discusses selling options and technical analysis. They explain why they prefer to sell out of the money options and how to manage the position correctly. The speaker also demonstrates how they do technical analysis using moving averages, Bollinger Bands, and RSI.
Selling Options
- Sell an in-the-money option or an out-of-the-money option.
- Selling an out-of-the-money option is safe and consistent.
- Manage the position correctly by closing it if necessary or getting assigned if it's a small position in your portfolio.
Technical Analysis
- Use moving averages to see where a stock has been trading for the past 30 days.
- Use Bollinger Bands to understand where a stock is likely to be traded based on its high points and low points in terms of standard deviation.
- Use RSI to determine whether a stock is oversold or overbought.
- Look for support levels on a chart, such as consolidation around a certain price level.
Trading Apple Options
In this section, the speaker shows how they trade Apple options using Robinhood. They explain why they prefer monthly options over weekly options for less volatile stocks like Apple. The speaker also demonstrates how to read an option chain and choose a strike price.
Choosing Strike Price
- The 122.5 strike has more safety than the 120 strike because of its higher break-even point.
- The 122.5 strike has decent premium but is still safe enough for the speaker's portfolio.
- The speaker enters three contracts for the 122.5 strike price.
Selling Put Options on SPY with a Small Account
In this video, the speaker discusses how to sell put options on SPY even if you have a small account. They explain what liquid options are, which expiration points they like for SPY, and how to close positions properly.
Selling Put Options on SPY
- Selling put options is a basic strategy that brings in premium and can be profitable when bullish on the stock.
- The speaker likes selling puts on SPY because it's an expensive stock with liquid options.
- To sell a put option, choose an expiration date and strike price with a high chance of profit and low delta.
- For example, selling the 367 put option expiring October 7th has an 88% chance of profit and a delta of 0.12.
- The problem with selling puts is needing collateral or capital to buy 100 shares of the stock if it falls below the strike price.
- The speaker solves this problem by using a loophole that allows selling puts without needing all the collateral or capital upfront.
Using Loophole to Sell Puts
- The loophole involves buying a call option at the same expiration date and strike price as the sold put option.
- This creates a synthetic long position that acts as collateral for selling the put option.
- By buying the call option, only its premium needs to be paid upfront instead of having all the capital needed for buying 100 shares of stock.
- If the stock falls below the strike price, exercise the call option to buy shares at that price and use them to fulfill obligation from sold put option.
Understanding Liquidity in Options Trading
In this section, the speaker explains how options trading works and why it is important to understand liquidity.
Importance of Liquidity
- Liquid stocks have high trading volume and are easy to buy and sell.
- Options for liquid stocks are also more liquid, making them easier to trade.
- Tight bid-ask spreads are important for beginners as they help reduce losses and increase profits.
Comparison with Selling Luxury Cars
- Selling a luxury car like a Lamborghini Huracan is harder than selling a Toyota Corolla because there are fewer buyers who can afford it.
- Similarly, options for less liquid stocks may be harder to sell or buy at a good price.
Analyzing Option Chains
In this section, the speaker demonstrates how to analyze option chains and choose an option to trade.
Choosing an Option
- Look for an option with around 88% chance of profit (12 Delta).
- Aim for a sweet spot of 10 to 14 Delta.
- Check the volume and bid-ask spread before choosing an option.
Example Trade
- Sell an option expiring on Wednesday with a strike price of 362.
- Buy a put option with a strike price of 352 to limit potential losses.
- The total credit collected should be around $100.
Selling a Put Option on SPY
In this section, the speaker explains how to sell a put option on SPY and the risks associated with it.
How to Sell a Put Option on SPY
- You can sell a put option on SPY for $70 while risking less than $1000.
- The risk of this position is if the stock falls, you can lose money.
- The number one risk of this position is opening up too much of it.
- This position will work out well most of the time but there is a 4% chance that you could end up losing significant amounts of money.
How to Close the Position
- If the stock goes down to say 363 dollars per share, right outside your strike zone, put a warning on this position and watch it closely.
- Four times out of 100, you will have to close the position when it goes into the red area.
- Depending on how well you close, your return could be either very high or very low.
- If you don't see good momentum in the chart or there isn't good support at 363 dollars per share, close your position as soon as it reaches 362 dollars per share.
- Keep watching your position like a hawk and don't really close until very end of day on expiration date which would be Wednesday.
Theta Time Decay
- Theta is basically time decay and because it's so huge I will keep watching this position like a hawk and not really close it until very end of the day on the expiration date which here would be Wednesday.
How to Close a Position with Options Trading
In this section, the speaker explains how to close a position in options trading.
Closing a Position
- When selling put options, the speaker recommends closing for around a 25 loss.
- For extreme scenarios like Tesla, where the speaker wants to hold until the last day, they will decide not to close early and instead hold until expiration and then close on the last day.
- This is exactly how to treat and close a position like this one.
Scaling a Small Portfolio with Selling Put Options
In this section, the speaker discusses how to scale a small portfolio by selling put options.
Scaling Strategies
- The speaker shares that it's possible to sell put options with a small portfolio and still scale it up.
- They mention their program that shows how they scaled from $7k to $17k.
- Viewers can book a free call with them or someone on their team to learn more about their Challenge and follow all of their trades.