Put Options – How to Sell Puts for Weekly Passive Income EASY Quick Explanation

hello everyone my name is henry and i've been trading options for over eight years now and in this video i'm going to visually and comprehensively show you put option trading i'm going to give you some examples and i'm going to show you exactly how i make up to 8 000 a month selling put options and at the end of the video i'm going to place many trades while explaining exactly how and why i pick certain options along with my profit from the trade make sure to stick around to the very end to become a master at collecting weekly income with options my one promise to you is that in this video if you're able to focus and commit i'm going to dramatically increase your portfolio income all at the same time you're going to have a new perspective on entering stocks and how options work before i jump in i appreciate a quick thumbs up and with that being said let's jump into being aggressive about our learning there are basically two reasons to sell put option contracts one to generate income and two to acquire shares of a stock at a discount to the current market price the standard definition of a put option contract is that a put gives the holder or the buyer the right to sell 100 shares of stock at a specific share price by a set date basically there are two ways of viewing short puts or in other words the strategy of selling puts one being paid to insure someone else's stock and two being paid for offering to buy someone else's stock i really like the insurance analogy because the insurance industry is profitable and selling puts is the secret way that warren buffett actually became rich with his geico company warren buffett invested all the geico money that he was pulling in through premiums just like i'm about to show you guys in the example i'm going to give you insurance translates well because puts are basically insurance for the share price of a stock if you own 100 shares of xyz company and you purchase a put at the strike price of 100 you can exercise the contract up to the expiration date and put the shares to the put seller at 100 per share in other words you're insured at the 100 share price level no matter how low the stock trades you can exercise your contract at any time you want and force someone else to buy your shares for 100 per share even if the company goes bankrupt you're guaranteed 100 but what i'm going to explain to you is being the person that sells the put and consistently collects that premium this form of insurance or put selling is both lucrative and safer than just being a stock investor as we'll see but first let's look at some key definitions terminology and examples together like a lot of specialized topics options trading has its share of jargon but once translated into english it's actually very easy to understand the first is strike price this is the price at which you're insuring the underlying stock if the stock is trading at or above the price at expiration the put will expire worthless if it closes at the expiration below the strike price you will automatically be assigned the shares these are basic definitions later we'll explore the incredibly flexible nature of managing short options next we have expiration date as you might expect this tells you the duration of the trade just as a traditional insurance company is only valid for a specific amount of time so are options option contracts also have ending dates depending on the stock you can select weekly expirations for options or ones that don't expire for months or even years i'll explain later which ones are the most profitable next we have premium this is actually the fun part because this is the amount that you get paid option prices are listed in what's called an options chain which includes the market maker's current bid and the current ask price it's very similar to stock quotes but since each contract represents 100 shares of the underlying stock to convert to a total dollar amount you'll need to multiply these prices by 100. every time you see a price for an option you just multiply by 100 for each contract that you're trading and if you sell a put option contract for one dollar for example that would actually be 100 upfront last we have assignment when the owner of a put exercises his or her contract someone is on the other side of that transaction being assigned the shares this is one of the biggest fears of those newer to the strategy but it's often an overblown fear and very easy to avoid i'll explain more of that when we get into the live trading session that i'm going to do for you guys today a common question is how can you sell something that you do not have selling something you don't own creates a short position hence when you sell to open a put option you've established a short put position in one way that's similar to shorting a stock but where it can be confusing is that short sellers benefit when a stock declines while put sellers benefit the most when a stock doesn't decline selling a put is also referred to as writing a put and i find this to be a more helpful way of viewing the trade because it aligns more closely to the insurance analogy you're writing input in the same way that your insurance company writes an insurance policy which you then sign and you buy keep in mind whatever gets open must eventually be closed so a sell to open put selling transaction will eventually be closed in one of three ways the first way is the put expires worthless if the stock closes at or above the short put strike price at expiration two the put holder exercises the option and you're assigned the shares three you submit a buy to close transaction this last one is where the great flexibility of foot selling starts to come in because you're always free to buy back the put you previously sold or wrote at any time there are many reasons why you might want to buy to close a short option position cutting your losses on a trade exiting early to lock in profits or as part of a rolling adjustment strategy i cover rolling options in more detail in my coaching and options course as a topic as it gets more complex before we move into an example here's a few more important points to make sure we're on the same page you sell options at the bid price to collect income and open a short put option you are selling to open when you're ready to close you buy to close at the ask price there's also a big difference between selling puts for income versus selling puts to strategically buy a stock at a discount as we've already discussed selling or writing puts is often compared to being your own miniature insurance company but instead of insuring someone else's car or house or bike or whatever it may be in their life you're ensuring their shares of price of their stock if the stock in question cooperates you can make some very good short term returns if you're primarily drawn to foot selling because of the great short-term income the strategy can produce you're in the right place however even when the stock falls you're not limited to buying your put back for a loss when you sell a put you need collateral equal to 100 shares of the put you're selling this is because at expiration if the stock is below your put price and you decide not to close your position you will be assigned the shares at the strike price the beauty of this is if you don't mind buying the stock at that price you're not in a really bad position in fact heads you win tails i'm fine with the situation as well because you want that stock to begin with say you sold a put at 100 when apple was a hundred and thirty dollars per share at expiration let's just say that apple went down to ninety eight dollars per share if you believe apple will make it back to 130 or at least even 120 dollars in the near future you've just bought yourself a huge discounted stock that you're excited to own had you just bought it as a regular stockholder at the time and you didn't sell a put you would have lost thirty dollars something you put on the other hand you're 28 dollars better because you only lost two dollars where the stockholder lost 30 in actuality you might have lost even less since you collected money for selling the put to begin with now i'm going to show you guys some live trading of how i utilize this option strategy every single week to make thousands of dollars let's see how much premium i can collect while i walk you through my exact thought process now here's some key takeaways to magnify your results further anytime you're selling puts for income rather than stock acquisition i think you definitely need to incorporate at least a basic level of technical analysis i've shown you some basic technical analysis and i would recommend you try to use another indicator as well i personally find value-oriented stocks a whole lot safer to insure than growth or momentum stocks however in the trades that i've made i was looking for more outsize returns with higher risk the premium is higher for stocks with more volatility finally if you do choose to sell puts on a growth or momentum stock it is wise to keep your position size small and grow it as you gain more confidence alright guys so i'm going to be trading about 175 000 today let's take a look at all the different tickers that i have here and let's pick a good stock to sell some puts on so essentially what i'm going to look for is stocks that are kind of following a lot today that i want to own and when i'm looking through today's stock list a lot of stocks are down so today is a fantastic day to sell some puts all right so i'm taking a look at apple and i'm kind of a fan of apple so i'm gonna click into apple and i'm also gonna go to yahoo finance and i'm gonna pull up the apple chart just so i can do some technical analysis for you guys and show you what i look for when i'm selling it put so here i am i'm in the charting feature and i'm actually going to get rid of this bolinger average i'm going to show you guys what bollinger average means in just a second so the first thing that i want to do is i want to take a moving average of apple and see where it has been trading for the past maybe 30 days so for this period instead of 50 which is the preset for yahoo finance i'm going to put 30 instead now i have a line here that shows me the average price that apple has been trading at for the last 30 days as you can see apple is trading below the 30-day moving average now i'm going to go over and i'm going to go into indicators and i'm going to click bollinger bands and bollinger bands are just a simple way for me to understand where apple is going to trade in terms of its high point and its low point in terms of its standard deviation all that really means is where apple is likely to be traded based on this indicator so after i use this indicator you can see that apple is near its low of the bollinger band now i also look at rsi you can see here that it's 46 which means to me that apple is somewhere in the middle of its trading range it's neither oversold nor is it overbought now i see apple had a lot of consolidation around the 119 level so one time it was at 119 another time it was at 120 again it was around 119.99 so i see there's a lot of support for apple right at the 120 level now i'm going to go back to robinhood and what i'm going to do here is i'm going to click trade apple options now apple is 128 dollars per share and what i'm going to do here is i'm going to go to sell put because this is what the video is about i'm going to show you guys exactly why i sell puts and what level i do it at so this week is may 14th however i want to go out at least one month so i can capture a decent amount of premium and not have to trade weekly with this single trade however i'll show you more weekly trading in the next stock that i pick but for apple it's a little bit less volatile meaning that you don't really want to do weekly options because they're not going to have as much premium as a monthly option will have so what i'm going to do here is i'm actually going to go out one month and go for june 18th and now i'm going to take a look at the option chain so this is what an option chain is it gives you the strike price that gives you the break even it gives you the chance of profit and it gives you so much more information now i did tell you guys that the 120 level has a lot of safety and a lot of support around it so for me this looks pretty good however if you take a look at the premium 1.51 cents or as i've said earlier it's going to be 151 because it is 100 shares actually this is a decent return it's just slightly over one percent but in a month i want to make a little bit over one percent so for me the 120 level is just not risky enough also if you take a look at the 122 and a half strike you can see here the break even is actually 120 dollars and 41 cents that's because when you take the strike price and you subtract the premium that you collect your actual break even price would be 120 and 40 cents because of that premium that you collect for me this is much more safe trade however it does have some decent premium and i do want to have this in my portfolio so this is a great example for me to show you guys so what i'm going to be doing right now is i'm actually going to click this little plus sign right here which tells robinhood that i want to sell this put option you guys can see now that it says short put now all you really have to do is click continue and i'm going to enter the amount of contracts that i want to trade for me i want to enter three contracts because i have a decent amount of money sitting around and i want to execute three contracts so here i go i click three and i'm gonna put the bid price which is two dollars and eight cents so two dollars and eight cents is the bid price and two dollars and eleven cents is going to be the ask price since i'm selling this option i'm going to go for the bid price two dollars and 10 cents i'm going to review this trade real fast and robinhood is asking me are you sure you want to buy 300 shares of apple at 122.50 notice they're saying that because when you sell a put option you're committing yourself to buy the stock at the strike price so robinhood knows this and they're asking me are you willing to purchase a stock at that price and since i just showed you guys that on the technical chart i would be happy to own apple at an average price of about 120 i'm happy to place this trade this trade takes up 36 000 of my capital so there you go guys i just collected 636 dollars for the first trade all right now let's find the next stock that i want to trade on so what i do here is i'm going to go to yahoo finance and i like to look at the trending tickers because usually when a ticker is trending then it actually has a lot more premium to it since more people are interested and it has more volatility but what i see today is that a lot of people are interested in dogecoin and ethereum but i do see alibaba on the list so i'm going to click alibaba and see what's going on so alibaba is selling off and it's down 2.88 today what i'm going to do again is go to the chart i'm going to do the very same analysis that i did before now what we can see with alibaba is for some reason it's selling off significantly i'm not going to do a lot of fundamental research in this video however i'm going to do a lot of technical research because that makes life a lot easier and faster to trade stocks and i'm also familiar with alibaba as a company and i know they're very good chinese stock what i see right off the bat is alibaba is trading way below its bollinger band and it's actually at 34 rsi which means that it's nearly oversold another thing that i'm going to do is i'm actually going to zoom out of the three-month chart and go to the six-month chart because i want to see how low it's been and what i can tell here is that right now it's at its all-time low for the past six months what this means it's a great time for me to sell and at the money put which means that i'm going to be selling a more aggressive put in collecting a lot more premium going back into robinhood i'm going to type in baba as a ticker symbol and i'm going to pull up baba now again i'm going to trade baba options i'm going to go sell put and this time i'm going to trade a weekly option because i promised you guys to show you a weekly option this option is going to expire on this friday now what i'm going to do is i'm going to pick an option that is near the money because i don't think alibaba can follow that much more here alibaba is trading at 218 dollars what i'm going to do is i'm going to eyeball and see which option contract i think has a decent amount of premium but isn't too aggressive so i could sell and at the money put at the 217 level and collect 453 which would be about 2 in just a few days however i don't want to take that much risk because the 212.5 level still has a lot of premium in fact it still has over one percent premium in less than a week so what i'm going to do is i'm going to click this and i'm going to continue and again i'm going to pick one contract and i'm going to put in the bid price of two dollars and 56 cents or 256 review this trade and put it in and actually as i'm putting in this trade you guys can already see that i have to go in and cancel this trade boom i'm going to cancel it because the bid price has fallen quite a bit and this is a very volatile stock today so instead of 256 i'm going to put 254 and quickly review this trade and hope that it goes through submit and boom we got filled and i collected another 254 the next stock that i want to trade is square square is another favorite stock that i have on my list and i actually have weekly options on it today is monday so i don't have any weekly options on square therefore i'm going to open it up and show you guys exactly what i like to do so square is 222 per share and today i'm going to look at the bollinger averages rsis and the moving average no surprise i have the same indicators i use all the time because i get so much information from these indicators now again it looks like square is near its bottom of the range it's around 222 dollars and the bottom of its bollinger band is about 222 now square hatch traded as low as about 207 here and again here at 201 and again we had a crash here and it was about 202 so i can tell that square has a lot of support around the 202 about 205 level now the moving average is much closer to if i zoom in the moving average looks like it's around 229 dollars per share so what i'm going to do is i'm going to go to robin hood and i'm going to sell a put option on square i'm going to look at the option chain and see which one makes the most sense so i said at the 205 dollars i'm very comfortable selling a put option however since the moving average was closer to 229 i am comfortable going a little closer to the money with this put option so instead of the 205 put option which only has a dollar and 12 cents i'm going to go higher and i'm going to sell a put option at the 217 and a half strike because i do want to own square and if it doesn't end up going this low i'm very happy collecting 373 dollars worth of premium so again i'm going to click sell put option i'm going to click continue and i'm going to enter two contracts because i really do like square a lot and i wouldn't mind owning 200 shares of it now i'm going to put in a price of 355 or 3.5 dollars per option contract now i'm going to review my trade it's going to be a 710 dollar premium that i'm going to collect and i'm putting 43 500 to play so this does happen from time to time i'm not getting filled so what i'm going to do is i'm actually going to click and replace my order instead so 710 dollars might be a little bit too much that i'm asking for so instead i'm going to put a lower amount of 3.35 this time and only collect 670 that's what i get for being kind of slow and submit all right so we just collected 670 all right so the next stock i'm going to be trading is peloton ticker symbol pton and i know a lot of people are a fan of this company so i'm going to show you guys an example of selling a put option now if i take a look at the pto and chart it has been trending a lot lower but i do see a lot of people did sell off right here and the stock ended up crashing down to 82 however now it seems a lot of investors are jumping back in and you can see that by looking at these two green lines what these green lines means is that a lot of investors are coming back in and they're putting in some buying pressure on the stock so now the stock was at 82 but it's trending higher at 85 dollars so what i want to do quickly is get in at about 82 since that was the bottom of the stock so it's going up very very fast so i'm going to do this example very quickly and since this is the fourth example that you guys have already seen i'm going to rush through it so real fast i know 82 is what i want the break even here is 81 81.28 perfect i'm going to sell this put click continue put one contract and i'm happy to get about 205 for it review and you know what actually 205 is too low so let me cancel that real fast i'm gonna go for somewhere around 214 i do think i will get filled at 214 because the ask is 237 in theory you can all honestly go somewhere in between the bid and ask price so i should get filled for 214 dollars right now once this trade goes through and boom we got filled so another 214 dollars on the books and the collateral that i used was 8 350 i hope that was helpful stick around because i got some very important keys for you to make more money and some best practices for you when you trade put options one screen that has helped me is to look for quality companies with good fundamentals if you decide to trade gross stocks like me valuation is very important you want to pick stocks that are not at their all-time highs or at the very least not at their price to sales ratio all-time highs as at that point it would be better just to buy some call options rather than selling puts i've got a whole playlist on options trading that you can check out by clicking the end card in just a few seconds and you can also check out the weekly option income academy for a full options trading education if you like this video or have any questions you can comment below or message me on instagram and if you want some personalized coaching i'd love to help you out i'm excited for your growth regardless and i'll see you guys in a later no one video sees me sees me i'm losing every battle no one never sees me sees me

Channel: Invest with Henry

Views: 134,731

Keywords: options trading for beginners, selling put options, selling options for income, monthly income strategies with options, selling options, put options, how to trade options, options trading, stock market, stop buying stocks, stock trading, options trading strategies, options trading explained, passive income, put selling, sell puts, options examples, put option example, selling puts, how to sell put options, apple stock, baba stock, square stock, peloton stock, options

Id: xEUcHOh5AHQ

Length: 20min 19sec (1219 seconds)

Published: Mon May 10 2021