Tips for selling puts?

A

artvandaley

Hey Guys,

For the last two months I've focused on selling puts as a way to make money in an account that is almost all cash. I've done quite well so far, mainly selling on Mondays or Tuesdays on puts expiring that Friday, but I've also had success on further out expirations, however, currently I feel more comfortable not holding over the weekend. Initially I only used stocks I was familiar with, but in an attempt to gain higher premiums (I like using Barcharts) I began using companies I previously didn't follow, and that's where I ended up buying back some contracts at a loss because the underlying dropped to or below the strike. I'm not entirely opposed to being assigned, it's just not part of my plan at this time.

Anyway, I need to:

(1) Fine tune my strategy, mainly I need to decide on which expirations I want to use on a regular basis, with some exceptions of course.

(3) Is there a particular day that you like to initiate this strategy?

(2) Do most of you hold until the put expires worthless, or do you intend to buy them back at a predetermined % gain?

Any other guidelines that come to mind?

Thanks!
 
ZBZB said:
Www.reddit.com thetagang read about the wheel, when you are assigned sell a call.
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100% agree with the wheel. I personally like selling puts after the second consecutive down day and continue to write puts if it continues and during the rebound. I wait until the stock rebounds above acb to write a call. Regardless of the security I typically write slightly OTM.

Do not increase your risk parameters after successive win streaks and save your profit for periods of consolidation. You can also attempt to time puts which can be called to you right before the ex-dividend date to get a tad more income.

Try for $100 a week until the next downturn then aim for $150 target. Repeating until next down turn then check if you can adjust to $175-$200 with your strat and if your buying power will allow it. $200 a week can be achievable in 6-12 months but you need to ease into it.
 
Thank you for taking the time to write! I've never heard of this wheel you speak of, but I will look into it later today. BlacknBlue, thank you for the insight, lately I've been writing way out of the money puts, but the premiums are nice, probably due to the volatility of the particular security. When you say 6-12 months, I take that as after that amount of practice I should achieve my goal, and not a reference to a contract's expiration, yes?
 
"When you say 6-12 months, I take that as after that amount of practice I should achieve my goal, and not a reference to a contract's expiration, yes?" - correct.
 
Some say covering if/when they've reduced in price by 90%-95% (from there you shorted) is a sound idea due to the fact that in the last week or so before expiry any big down move in the underlying can really move the price of the puts, ie they can climb hundreds of % if not a few thousand %.

The downsifde to that, and there's always a downside in this game (and upside of course), is you'd be leaving a lot small money on the table the majority of the time.

As for your strategy of selling puts over the last 2 months, don't confuse a winning strategy in a bull market or ever higher prices as we've been having over the last 2 months. Not suggesting you're a monkey but any monkey selling puts over the last 2 months has done as well as you, if not better...
 
be carefull to not overleverage in the put selling a lot of bright minds have seen a blow up like this happen to them. It''s the same old story everytime: either the market 'can't get any lower' but it does so or either people start to see put selling as free money in a market that only goes up over the last few months and think this is the normal course as in the long run the market goes up, untill that big correction out of nowhere arrives.
 
I speak from experience: I blew up big sellling puts 25 years ago when I didn't knew options yet too well, mostly only from book reading
 
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