How To Sell Puts For Max Profits In Shorter Time

in this video I'm going to teach you how to sell put options for max profits in shorter amounts of time my name is Joshua Bellinger of option sizzle calm and in the next few minutes I'm going to outline a five-step process that you should follow to help you increase your probabilities of success with selling put options and also a case study looking at a trade that was published on social media and how those five criterias matched up for that success so looking at the first criteria and the first one being the most important is that we want to make sure that we're looking for opportunities that have high implied volatility now the high implied volatility is something that is a little vague to a lot of people but when we look at the opportunities and how they exist when we have that high implied volatility that gives us an added bonus and added incentive to get aggressive and also take advantage of that and what that means is that the market has priced in typically a larger than expected move and what we want to do is not only capture that but going into the next step is we want to find an underlying that is overextended and typically when we're selling puts that is going to be something that has moved to the downside and what happens is is that there's some kind of news or something that comes out that has made that underlying continue in a direction being lower and that increases the overall implied volatility of those put options and that is where the opportunity exists the third one is we want to find options that expire typically five to six weeks from entry date so once we find an opportunity that's pretty extended to one direction and this is creating a little bit of a bias for us so we'll look at that example in a few minutes here and I'll show you exactly that over extension but this is a hat this has a little bit of a bias and the reason why is because the first bias is that we think implied volatility is high second one is that we think it's overextended in one direction so the outcome is either going to see prices pause and or lift off those levels so we create a little bit of a bias but it creates a better chance of success overall for us so going into the third one when we create an opportunity and find that we want to make sure that we have time on our hand so typically five to six weeks are going to give us enough time for that trade to either work itself out meaning that it could be an entry that we get into a little bit early but that's fine because what we want to do is we want to have that implied volatility going into the other direction so when we sell it goes in the opposite direction kind of revert back to its mean and then we also have things that go into creating success for us like time decay and that creates the opportunity for us and when we have time we don't have to focus on shorter term timeframes where if you look at a weekly option we can look for the opportunities to pan out which gives us a little bit more cushion to have it go against us and just let the opportunity work for us the fourth one is that we want to sell a put option strike that is out of the money and what that means is that we'll look at the example in a second here but we can get aggressive with an ad the money but for a lot of investors going out of the money and we don't want to go too far out of the money because we want to get paid for it as well but when we get aggressive and we go with it and at the money option that's really getting very aggressive and you have to be really focused and on top of it when we do an out of the money we gives us space to be wrong and just let that work out for us so the fifth and final one is that we don't want to milk the trade for the full premium so in the next example or in the case study that I'll show you I'll explain to you when that one was put on and also when it was taken off and why but a lot of times and a lot of issues where people come in to losing by selling puts is that option doesn't have a high implied volatility the implied volatility on that is not as high as it should be to take advantage of it and create that opportunity the second one I would have to say is that they look to take in the full premium and what that means is that if you sell a put option you are getting paid a premium so if you sell a put option that's out of the money and you get 50 cents on it that creates the max profit of 50 cents per option contract and what happens to a lot of people is that they will ride that out looking to collect that full 50 cents and that is not the right way to do it what we want to do is we want to take the bigger chunk of that and the chunk of it is typically from 30 to about 60% of that full premium so we're looking at probably about 25 cents to 35 cents is that where we would want to take out that premium of that full potential the rest of it becomes risk where we don't want to keep that risk and then the next thing that happens is that they go into the last week of expiration with these positions on instead of moving on to the next trade they look to milk this as much as they possibly can and will begin until last week that's where a lot of issues come for investors where they sell these puts the gamma risk increases and that's where the losses start to occur so the fifth and final one and this is more about managing the overall position is that do not look to take in the full amount of premium that you collected take like I said between 30 to 60 percent of that premium and you dictate where that is comfortable for you but the faster you take premiums the faster you collect the money you get out of that position and you can find a new opportunity because when we're looking at underlying there's a lot of underlyings that are out there so there's a lot of opportunities that exist so for individuals that are trying to milk that position there could be a better opportunity that's setting up that they can collect more premium on by just closing that position and moving on to the next opportunity so in the next rotation of this you'll see the trading platform thinkorswim and we'll be looking at that case example alright so here is a screenshot from my twitter account which is at option sizzle on Twitter and I'm here just a brief notes here one of the things that I sent out during this time was on June 10th and was just near the close of the market here but I talked about that eBay had a nice set up to sell a put with the Ivy higher and that move lower so those two in the first two criterias that we talked about met up right there and we talked about the July 45 put seeing a decent amount of sellers so the thing that I look at and built option sizzle based on was unusual option activity which is a indicator of interest in the options market and can provide transparency on individuals playing direction but one of the things that I noticed in these puts is that they were seeing a decent amount of sellers and it didn't really mean too much but it kind of built a little bit more conviction for the overall trade so even though this is hindsight and we're talking about something here this is a time-stamped and this is something that was published on social media and I want to walk you through and how all those criterias met up here and how this became a successful opportunity and for you to learn from this to be able to apply it to your own investing needs so I'm going to close this out here and one of the things that we do here is in the thinkorswim platform is that we can backtrack here so I want to go back to the tenth here and what I'm going to do is I'm going to go to charts as well so here's an eBay chart and here's a one-year chart now charts are not necessary to be successful with option trading but to give you a visual of where prices were at that time I just want to show you where that was occurring here so right here where my cursor is at and we'll zoom it in here just a little bit but this is the ninth and here's the tenth so the first criteria that we want to look at is average implied volatility now there's a few different ways to look at implied volatility and measure how high it is or where it's at in its overall average for thinkorswim there's a little indicator that you can apply to these profits arts called average implied volatility also on the option montage they have option statistics which show an IV rank like I said there's a few different ways and if you want to move over to option sizzle comm we'll talk more about that in other posts and other videos but for the time being what I'm looking at right here was just the average implied volatility at this point so previous it was much higher we had moves of this level here but looking at it at this point and also looking at the overall market this was actually pretty high for its overall overall implied volatility at the time especially being that from a few days ago or just a couple weeks ago it was here just above the 20 level and then all of a sudden with this move lower here it also shot up to 25 so the over extension that we've talked about here is that eBay going all the way back to March was at $59 and all of a sudden going into June here it's at $48 so this is a pretty decent move from high to low here in that time frame and the overall move has been lower so if we look here you can see that when we had an extension of prices to one level that we saw that channel or what you can create as a channel is that you get these these lifts and it kind of just cycles so this right here to me look like a cycle especially when we have this big candle here we had a little bit of a move here and then it just kind of opens up and then finishes at this level here so this created the opportunity now obviously in hindsight we saw prices lift higher here that didn't necessarily need to happen it could have just traded sideways here it also could have like traded sideways like how this happened here it also could have went a little bit lower against us but again that's where we look for our entries looking back here this could have been an opportunity where you would have maybe looked at the selling that and this would have been more of the opportunity here where you see the next day it actually kind of goes against you well this is the opportunity that options provide is that you can be wrong and still make prophets and the reason why is because of the structuring of how these options work and if you take advantage of them at the right times especially when selling taking advantage of high implied volatility you're able to create opportunities for yourself that still you may not be right directionally but on other factors like implied volatility you could be right and still make money and also time so this went against it for a short time and then bounced higher and there's other times where getting into puts and if this is something you've done before where you've seen and you've probably gotten in a little bit too early you know for instance on this candle here it you know maybe selling a put here and then all of a sudden seen it go against you quickly but again understand that prices do cycle and if you take advantage of it on an extreme like we've talked about that creates a better opportunity for it to working out so what we're going to go back and do is go back to analyze here and go back to those eBay options so I talked about those July 45s and at the time here there were 38 days to expiration so this kind of fits the criteria I could have went out to these weeklies here or the August August was a little bit too much time so the 45s that I was looking at here were traded thirty-four hundred times and that's where I saw some selling of those in that volume there and the time and sales so here they closed at 53 by 55 cents so if we sell that 45 strike we collect either 53 54 55 cents if that was the closing prices these were a little bit higher throughout the day but that's where these closing prices were the next question would be well why the 45 strike well prices were at $48 and like we talked about in the criteria looking for an out of the money we want something that creates an opportunity for us and one of the easy ways to look at something is looking at the Delta and this has a 22 Delta so this has a probability of about 78% of being successful or expiring worthless that doesn't mean that during this time frame in the next 38 days that this contract the strike can increase so if we sell sold it at fifty five cents that doesn't mean that it's not going to go higher in price and or that prices might not touch there it could we could see that prices do move into that level but again we understand cycling and that's something that you should be aware of of how prices work and that even if it does touch there we do see losses but letting it work out with time and duration is going to help us and even though that it might show short-term a loss we let that work out and eventually we want it to work in our favor to be successful and make profits so what I'm going to do here is I'm just going to sell this option here I'm just going to sell single and I just want to walk through this process with you so we talked about how price is lifted higher there so right here average price was about 55 cents and this is the tenth here so what we're looking at here is that 10 contracts and one of the other reasons why eBay was an interesting opportunity is because it's not a high priced stock and when you get lower price stocks the margin required on here is going to be much more favorable than selling something like Google and if you do something like Google you have to look at doing somewhat of a put spread because you have to offset the cost that's needed for it when you focus in on something that is $48 the the margin requirement is not going to be as great and it's going to help with the overall return on capital that you might have or need so this is something that larger accounts can do and also a smaller account so looking at the price is also going to help you so if we go back to the charts here we notice that the prices did go a little bit lower here so there probably and there was another opportunity on the 10th to look at something but then the next several days we saw prices move higher so the 10th here and we go and we look at this move here and this move is the one we want to focus in on because this is only eight days after so we want to go to the 18th and we'll go back to the analyze tab here and what we'll do here is we'll move this forward so as we continue forward here you can start to see the PNL increase the twelfth and you notice the PNL oh I got to go up changes here and 14th 15th 16th 17th and then the 18th 18th created that PNL of $310 so why was the 18th important well one of the things that we want to do is again we want to manage this position so keeping in mind if we don't milk the whole premium that we've collected here so we don't look to take in that whole fifty five cents that's something that we don't want to do if it happens it happens meaning that maybe eBay had some kind of large move higher and it went up to 50 bucks well these options probably may have gone up depending on the timeframe they drop down to ten cents and value well you can take them off to take the risk off or in other times you can see something happen like that where you can buy those options back at a few cents however that doesn't happen all the time and managing the position is what we want to do so what I'm going to do is I'm going to go to the 18th here and if we look at that chart again 18th we had a big move here and we always want to take off positions into those moves because that creates the best opportunity and also if we go back here and we look at those July contracts that 45 strike is at 23 by 25 cents so keeping in mind that's about a 50% profit on the premium that we collected that's a good spot to take off this trade again we're not looking to make the whole premium on this and we can get out of that position so we get out of this position and we collect that and then we go on and find the next opportunity so that is the reason why and if we just move this a couple days forward we still have profits going into this and we can move those dates higher here 19th so you see that we still have the opportunity to lock this up but this starts to stall our overall capital that we have tied up in this position meaning that we can take this off the table take the profit and find another opportunity that's going to benefit us so it's not wanting to stay in the position and overstaying your welcome going back to the position as well you could start to see even though the implied volatility the average did move up higher here we did get a peak down and this is what actually helped us create that profit so we got the directional movement we weren't really or going back to right here we weren't really accurate on the fact of implied volatility may go lower we were more right on that direction which helped us in in that position but overall one of the factors did work out for us and it was something to be able to take a position on and close it down even though we were right on direction which is not always the scenario for a lot of people being right on direction and we were wrong on implied volatility so what's going on here is that now going into a few weeks and the reason why we would want to take this position off is that earnings for eBay are coming up in a few weeks so that's going to help implied volatility at least stay at this level or even move up higher and that's really reason why we want to take that position off as well and be understanding of when earnings are for individual equities so understanding those five aspects that we talked about in the beginning of this presentation really helped this trade overall succeed and it will help you put on positions like this and create higher chances of success and that little number five criteria not looking to take the whole premium and managing the position taking it off and looking to move on to the next opportunity will help you keep more of your profits and lose less so make sure you like the video below and also keep in touch with myself on option sizzle com we have free report and we also have a lot of great material in the form of articles and more videos coming like this so sign up for our newsletter sign up for our videos the free report keep in contact and if there's any questions that you have you can either leave them below or when you sign up for the newsletter on the site you'll be able to reply back to me and we'll be able to see it and communicate that way as well

Channel: Joshua M. Belanger

Views: 326,261

Rating: 4.7662711 out of 5

Keywords: selling puts, put selling, options selling, selling options, selling put options, how to sell puts, sell puts, option put selling, option strategies, put option selling, naked put selling, income selling puts, Put Option

Id: ySqbZqirTK4

Length: 20min 30sec (1230 seconds)

Published: Sat Jun 21 2014