Key Takeaways: Selling Put Options
- What is Selling Put Options?: Selling put options is a strategy where a trader writes a contract promising to buy a specific stock at a set price by a certain date. In exchange for taking on this obligation, the trader receives a cash premium immediately.
- Primary Benefit: It allows investors to generate income or acquire stocks at a discount to the current market price.
- BestStockStrategy Approach: Rather than just selling naked puts, we use the premium collected from selling puts to finance Call Debit Spreads. This allows us to participate in the stock's upside potential for a net credit, while ensuring we only acquire shares at a price we are comfortable owning.
- Ideal Environment: High implied volatility (IV) where option premiums are expensive.
Short Put Option Calculator
Cash Collateral Required:
$0.00
Instant Cash Income:
$0.00
New Break-Even Price:
$0.00
Return on Capital:
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Annualized Return:
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Have you ever come across someone telling you that selling put options is too risky? They might claim that simply "buying and holding" stocks is the only way to capture growth.
They are wrong.
The smartest path isn't just selling puts OR buying stocks. It is combining them.
In this guide, we will show you the "Financed Bull" Strategy: How to buy Call Debit Spreads (to capture unlimited upside) and finance the entire cost by selling naked puts at a price you'd be happy to own the stock anyway.
Why would you sell a put option?
First of all, what are the actual benefits of selling a put option?
Most traders sell puts to collect income. While this works, it's inefficient because it caps your upside.
At BestStockStrategy, we use selling puts differently. We sell puts to finance the purchase of assets. By selling a put, we collect cash that we immediately use to buy a Call Debit Spread. This allows us to participate in the stock's explosion upwards for zero net cost.
Learning how to sell put options for a profit takes hard work and lots of dedication.
Want to improve your trading strategy? Check out David Jaffee, one of the best options trading coaches!
What is the risk of selling a put option?
For those of you that are new to options trading, what are the risks of selling a put option?
The risk of selling a put option lies with how likely the price of the underlying shares will drop below a specific price (the strike price) within a specific timeline (the expiration date).
If the price of a security's share drops below the strike price, the option seller will have to purchase 100 shares, for every put option they sell.
You might be wondering, how can I find out if a company’s shares are set up in a way that is suitable for selling a put option?
One way is to find a legitimate and reputable options trading coach with a great trading strategy.
David Jaffee teaches a trading strategy where his members can win up to 98% of their trades.
It's important when trading that you do not take on too much risk. You don't want to trade high risk, high reward, companies. Instead, it's best to build your account slowly and steadily.
What happens when you sell put options?
When you sell a put option, there are three possible outcomes:
- Option will be exercised
- Option will expire worthless
- Option will be closed early
When selling an option, the seller collects premium for agreeing to purchase the underlying security at the strike price.
If the option is exercised, or assigned, then the seller will purchase 100 shares of the underlying security, at the strike price, for every contract they sold.
In this scenario, the option seller can now run the wheel strategy to reduce their cost basis, while also participating in the capital appreciation of the stock.
The option can also expire worthless if the security is trading above the strike price at expiration.
Finally, the option seller can buy back the option in order to close out the trade.
Not sure which companies to target when it comes to selling put options? Watch this online review on the best stock market strategy!
Advanced Strategy: Using Short Puts to Finance Call Debit Spreads
Most beginners view selling put options solely as an income strategy. They sell the put, collect the cash, and hope the option expires worthless. While this works, it leaves money on the table because it caps your upside.
At BestStockStrategy, we utilize a more capital-efficient approach. We treat the premium received from selling a put option as a 'funding mechanism.'
The Structure:
- Sell a Put Option: We sell a put at a strike price where we would be happy to own the stock (e.g., 15-20% below market price).
- Buy a Call Debit Spread: We use the cash collected from the put to purchase a Call Debit Spread (buying a near-the-money call and selling a further out-of-the-money call).
The Result:
- If the stock rallies: We profit significantly from the Call Debit Spread.
- If the stock stays flat: We keep the net credit (premium) because the options expire.
- If the stock falls: We are assigned the shares at the lower strike price—a price we already deemed a 'value zone.
This creates a scenario where you can participate in the stock's growth without paying out-of-pocket for the long calls, as the short put finances the entire trade.
Optimizing Capital Efficiency: Portfolio Margin & Cash Sweeps
Selling put options requires collateral. For retail traders using Regulation T margin, this can be capital intensive. However, High Net Worth investors utilizing Portfolio Margin can trade with significantly reduced buying power requirements based on the actual risk of the diversified portfolio.
The 'Double Dip' on Yield:
Sophisticated traders rarely let their cash collateral sit idle. We recommend optimizing your cash sweep by holding collateral in instruments like BOXX (Alpha Architect 1-3 Month Box ETF) or SGOV.
- BOXX is particularly efficient for high earners as it is designed to deliver returns similar to T-Bills but with preferential tax treatment as capital gains rather than ordinary income.
- This allows you to earn ~5% on your idle cash while using that same buying power to sell put options and finance spreads.
Is selling puts better than buying stocks?
It depends on your goal.
- Buying Stock: Unlimited upside, but 100% downside risk and no probability edge.
- Selling Puts: High probability of profit (you win if the stock stays flat or rises), but your upside is capped.
- The Winner (Financed Bull): This offers the best of both worlds. By buying a Call Debit Spread financed by a short Put, you keep the high probability of winning, but you uncap your upside. If the stock rockets up, you make massive returns—often far exceeding what you'd make just selling a naked put.
Selling put options also provides a higher probability for profit.
Are you looking for a mentor that can help guide you to trading success? Read more about David Jaffee’s Options Trading course review here!
Conclusion: Selling Puts vs Buying Stocks
Don't just buy stocks and hope they go up. And don't just sell puts and cap your winners.
Use the Financed Bull Strategy.
By buying Call Debit Spreads and financing them with short puts, you can target a 98% win rate while still capturing the massive upside of market leaders like Amazon, Google, and Microsoft.
Ready to see this strategy in action?
Click here to try the Trade Alerts for 14-Day Trial
Frequently Asked Questions (FAQs) - Selling Options vs. Buying Stocks
What's the difference between stocks and options?
The biggest difference between options and stocks is that stocks represent shares of ownership in individual companies, while options are derivatives on underlying stocks that allows you to sell, or buy, insurance based on where you believe the stock price is headed.
Is selling put options better than buying stocks?
Yes, selling put options is generally safer than buying stocks because you have a "statistical edge"—you can profit even if the stock stays flat.
However, the best approach is to combine them. At BestStockStrategy, we use the "Financed Bull" strategy: we sell put options to finance the purchase of Call Debit Spreads. This gives us the high probability of selling puts, but with the unlimited upside potential of buying stocks—all for zero (or very low) cost.
Is options trading more capital efficient than buying stocks?
Yes. Your online brokerage will require ~50% - 100% of the funds when purchasing stock, and you'll pay margin interest on the remaining 50% (if you're using a margin account).
With options, you can control ~100 shares of stock with only ~15% - 20% of the capital using Regulation T margin.
For larger accounts with Portfolio Margin, you can control 100 shares of stock with only ~5% - 10% of the notional value.
Stocks vs options?
Trading options allow you to be profitable in all trading environments (bull market, sideways market, grind down market and market crash).
It's much harder to be profitable when trading stocks because you'll have less flexibility.
Is selling put options bullish or bearish?
Selling put options is a neutral-to-bullish strategy. You profit if the stock price rises, stays flat, or falls slightly but stays above your strike price.
How does the BestStockStrategy trading strategy differ from 'The Wheel'?
The Wheel is a passive income strategy. BestStockStrategy is an active wealth accumulation strategy. We do not just collect premium; we use that premium to buy Call Debit Spreads, allowing us to capture significant upside appreciation that 'The Wheel' misses.