You will not earn money with options trading unless you execute this selling puts strategy that I will share with you in this post.
There is a lot of misleading information from fake gurus telling you that you can make money trading by memorizing three chart patterns, using technical analysis, forex trading, penny stocks and futures trading.
In my opinion, you will lose money with all of these trading techniques, products and strategies.
If I traded any of those strategies, I would lose money.
Day traders are fraud victims: It's scientifically proven.
Hopefully you are not engaging in self-destructive trading strategies so that you can learn how to trade options and be consistently profitable in all market environments.
Can you make a living selling puts?
Yes, you can.
Selling Puts Strategy (Key Points)
DO NOT Buy Call Options
Do NOT buy call options unless you want to be broke.
This is where I differ from many other traders because they encourage others to buy call options, which I don't recommend.
When buying options, you'll win 2 out of 10 times.
You will lose 8 out of 10 trades.
The losses will substantially outweigh the gains.
Insurance companies make money by selling insurance policies, they do not buy insurance.
The only way to make money in the stock market is by selling options, specifically put options, using the selling puts strategy I will share below.
A substantial percentage of my profits are generated generated from selling put options (both naked options and vertical credit spreads).
My goal today is to teach you the winning trading strategy that I always use so that you can begin selling put options for a living.
If you want to improve your trading skills then it's important to learn and build good habits.
My students make money trading options while also reducing their risk.
The winning selling puts strategy that I will reveal to you is free it's also a trading strategy which is incredibly valuable, many people make a living selling puts.
Selling Puts for Income
It is best to sell puts and calls if you want to make a living by trading.
I mostly sell out-of-the-money vertical credit spread put options because it provides a substantial amount of protection.
I do not recommend that traders buy a put (or a call option).
By selling put options:
First, you're able to collect a large amount of option premium.
Second, you are inherently protected from selling too many contracts when selling vertical credit spreads because your buying power is already reduced by maximum loss.
Third, when a position is challenged, it is easy to roll and manage it.
In general, I recommend trading vertical credit spreads, instead of naked options because you have downside protection and spreads are more capital efficient.
I also do not recommend that options traders sell in the money puts.
I believe it's important to sell vertical credit spreads during low volatility environments to protect against a large correction and volatility expansion (you can sell naked puts during times of elevated IV - when the VIX is trading over 25).
Traders should avoid selling too many vertical credit spreads due to the smaller buying power reduction - you don't want to be in a situation where you'd be unable to take assignment.
As a result, I recommend avoiding the temptation of trading too many contracts and selling vertical credit spreads when the VIX is below 25 and then sell naked puts when the VIX is trading above 25.
Selling Puts Strategy: Naked Puts vs. Vertical Credit Spread
Let's say you wanted to sell a put on Facebook at a strike price of $145 and then you also bought a $140 put (so that you turned the trade into a spread), your total selling puts risk is $5 / share.
Because the buying power reduction is so much smaller for the spread than it is for the naked option, many people get greedy and end up selling 5x - 10x too many spreads.
People are very bad at disciplining themselves. In fact, I would say that most people are self-destructive.
If an options trader were to sell 5 naked options, they might trade 30 spreads to compensate for the reduced premium.
If Facebook falls to $143, the trader may get assigned those 30 contracts and because their account isn't large enough, they would have to close the positions for a large loss.
It's easier to roll naked positions because you don't have to constantly buy the lower-priced put option; additionally, you can use the premium that you receive when rolling the position to improve the basis, or reduce the size, of your naked option position.
Even so, I recommend trading spreads because it reduces your selling puts risk and protects you from large moves in the stock market.
Spreads are a defined risk trade. Vertical credit spreads are also more capital efficient.
While both spreads and naked options are fine, I prefer spreads.
"If you want to live the best life, you must commit yourself to constant improvement and developing healthy habits." - David Jaffee, BestStockStrategy.com
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Selling Puts Strategy: The Best Way
What should you do today to earn an income by selling puts?
Many people are selling puts for income and generate monthly income by selling puts.
As I mentioned, 80% of my trading profits are earned from selling put options.
I will now reveal to you the selling puts strategy (selling puts options) you can utilize to make money by trading.
Remember: You should only trade market leaders like Facebook, Amazon, Lockheed Martin, Goldman Sachs, etc.
If you have an account size below $100,000, you should trade a maximum of 2 - 3 underlyings at a time.
For example, you can choose Facebook and PayPal or Amazon and JP Morgan.
In general, I want the underlyings to be in different industries, that way I have industry diversification.
If your portfolio size is less than $10,000 you should trade a maximum of 1 -2 underlyings at a time.
Keep it simple.
I have a multi-million dollar account and I only trade and have positions on 5 - 6 underlyings at a time.
Selling puts example:
Let's say Facebook is trading at $165 at this moment. You should look at the trading range of where it's been trading over the past three or four weeks.
Let's say that Facebook has mostly been trading between $160 and $170.
What you can do is wait for Facebook to trade close to ~$160, then you sell an out-of-the-money put spread with strikes around $148 / $140.
You'd choose an expiration date that is around six weeks out, collect around $1.20 per share of $120 per contract, and there is ~95%+ probability that this trade would expire worthless and enable you to keep the premium.
In general, we would not wait until expiration and we prefer to close out our positions early.
So in the example above, we would probably close out that position once the puts are trading around 40 cents a share.
Here's an important takeaway from this selling puts strategy:
Why doesn't everyone make money in the stock market?
Because most people are self-destructive and NOT disciplined enough to manage risk.
Be patient and invest in themselves to learn valuable skills.
In the selling puts example above, most traders would not be able to wait for Facebook to fall to ~$160, instead they would enter the trade at a vastly inferior entry point.
Selling Puts Advantages
How I made $50K Selling Puts when Facebook Crashed (July 2018)
I made $50,000 when Facebook fell from $218 to $175.
I made this money because I was patient.
Prior to falling, Facebook increased in price virtually every day after it had risen above $180.
While its price was going up, I was disciplined and left it alone (waiting for a pullback).
Once Facebook fell from $218 to $175, I sold the $150 strike puts and collected a large amount of premium.
In general, I am very patient when entering new positions.
If a stock does not provide a good entry point, then I will not open a new position.
Since Facebook continuously increased in price from $180 to $218, and there was no pullbacks, it was easy for me to not trade it and, instead, focus on other opportunities.
You have to be very disciplined when trading options.
And you have to commit yourself to constantly reinforcing positive habits.
"Selling vertical credit spread put options is your best way of making consistent profits in the stock market." - David Jaffee BestStockStrategy.com
Conclusion: Selling Puts Strategy
Selling vertical credit spread put options is your best way to make consistent profits in the stock market.
Learn from this selling puts strategy comprehensive guide and apply it to your trades so that you can begin selling puts for income and generate monthly income by selling puts.
Avoid selling puts with inferior brokers such as, in my opinion, Robinhood. I would also not recommend selling covered puts (holding stock is not an efficient usage of capital).
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