Selling Weekly or Monthly Put Options for Income
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Because it offers a large source of revenue generation, most investors are drawn to options. Call and put strategies enable an investor to earn money and protect the risk in their portfolio.
What is Options Trading and How Does it Work?
Options are contracts that give the option buyer the right to buy or sell a stock at a particular price (strike price) before a certain date but not an obligation to do so. The call option gives the buyer the right to purchase, whereas the put option gives him/her the right to sell.
Why Sell Weekly Put Options?
According to a CME study of expired and exercised options from 1997 through 1999, the typical proportion of all options accepted to expiration at CME ended up worthless at 76.5 percent during that period.
The put seller has the benefit of making money off a useless expired contract while also having the chance to purchase shares at a good price if the buyer exercised their option to sell.
Selling weekly put options is a good strategy for investors who are looking for an income stream as well as the chance to purchase shares at a good price.
How Does It Work?
The put seller sells the right to sell a stock at a certain price (strike price) to the put buyer.
The put seller will receive a premium for selling this right. If the stock price falls below the strike price, the put buyer may exercise their option to sell and the put seller is obligated to buy the stock at the strike price.
If the stock price does not fall below the strike price, the put option expires worthless and the put seller keeps the premium.
Disclaimer: There are affiliate links on this page. This means that if you click through and purchase anything, I might earn a commission for the introduction with no extra cost to you. In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.
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Bullseye Trades: Best Alerts Service
Every Monday at the market open, Jeff sends you his weekly Bullseye Trade.
2022 has been AMAZING for these Bullseye Trades!
(+50% to 300% per week in my experience)
LEARN HOW TO WIN 90% OF YOU TRADES IN 90 SECONDS!
>> CLICK HERE TO LEARN MORE! <<
When to sell weekly puts?
Following points to be considered while selling weekly puts.
If the seller has a positive or neutral outlook on an underlying’s stock, he may sell put options with a high premium.
When the stock is range-bound or there is a minor movement, the seller should sell a put option. It ensures that the stock will stay in
When the volatility of an underlying asset’s stock is lower, selling weekly puts can help you avoid massive losses if the stock goes in the wrong direction.
There should be a sufficient margin in the account available to place a selling order. The capital requirement varies based on the broker.
Premium amount should be appealing enough to cover the cost of the transaction while still generating high returns on the option.
Selling Weekly or Monthly Put Options for Income: Time Decay
As an option’s deadline approaches, its decay rate quickens as the amount of time remaining to profit from the trade decreases.
Weekly puts may be sold, allowing traders to profit from a quicker premium decline rate.
Example
For example, assume that the stock price of ABC Corporation is currently $10 per share. An investor believes that the price will not fall below $9 per share in the next week. The investor sells a put option with a strike price of $9 and collects a premium of $0.50 per share.
If the stock price of ABC Corporation remains above $9 per share, the option expires worthless and the investor keeps the $0.50 per share premium.
If the stock price of ABC Corporation falls below $9 per share, the put buyer may exercise their option to sell and the investor is obligated to buy the stock at $9 per share. The investor would then incur a loss of $0.50 per share.
Risks
The risks of selling weekly put options include the following:
The stock price may fall below the strike price and the investor would be obligated to purchase the stock at that price.
The stock price may fall sharply and the investor would be forced to purchase the stock at a much higher price than anticipated.
The investor may not have enough margin available to sell the put option and may be forced to liquidate other investments to meet the margin requirements.
The investor may not be able to find a buyer for the put option when it is time to close out the position.
Disclaimer: There are affiliate links on this page. This means that if you click through and purchase anything, I might earn a commission for the introduction with no extra cost to you. In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.
Come and join my Stock Alerts Reviewed Facebook Group HERE!
Bullseye Trades: Best Alerts Service
Every Monday at the market open, Jeff sends you his weekly Bullseye Trade.
2022 has been AMAZING for these Bullseye Trades!
(+50% to 300% per week in my experience)
LEARN HOW TO WIN 90% OF YOU TRADES IN 90 SECONDS!
>> CLICK HERE TO LEARN MORE! <<
How to Mitigate the Risks?
There are a few things investors can do to mitigate the risks of selling weekly put options:
Diversify the portfolio: By selling puts on multiple stocks in different sectors, an investor can mitigate the risk of a sharp decline in one particular stock.
Choose the right strike price: An investor should choose a strike price that is below the current stock price but still represents a price at which they would be willing to purchase the stock.
Monitor the position: It is important to monitor the positions closely and take action if the stock price starts to fall sharply.
Exit the position: If the stock price falls below the strike price, it may be best to exit the position and take the loss rather than be forced to purchase the stock at a higher price.
Selling weekly put options can be a great way to generate income but it is important to be aware of the risks involved. By diversifying the portfolio, choosing the right strike price, and monitoring the position closely, investors can help mitigate the risks.
Selling Weekly or Monthly Put Options for Income: Conclusions
I think that selling weekly put options is a great way to generate income. I like that you can diversify your portfolio and choose the right strike price. I think it is important to monitor the position closely, however, and to exit the position if the stock price falls below the strike price.
Russell
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