Here are the winning and losing trades using this strategy year to date
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The ground rules of making money in the stock options market is to understand that
What is theta?
Theta, in the context of Greek fundamentals as applied to options, is time decay. Options contract pricing is dependent on a few fundamental factors and Theta is a key part of it. The strategy that this screener is built on is to capture the time value of the options contracts that you would sell. As an option contract gets closer to its expiration, its theta value goes down, because there is less and less time for the stock price to change. That is all there is to it. All we want to do here is take a position that may be unlikely to happen and hope to capture the time decay as the option contract get closer to expiration, and ideally have the option contract expire worthless.
The textbook financial term for this strategy is simply cash secured puts. More accurately, cash secured put selling for way out-of-the-money strike prices. This screener goes through the US stock market and finds companies that have over $10B in market cap whose options contracts are priced higher than normal due to very high implied volatility (flucuating more than usual).
A cash secured put is selling a put option on a stock that if the put option you sold is in-the-money, you have the funds to cover the assignment and buy the stock at the strike price you sold the option contract at. It is essentially a limit order on a stock, except you don't earn anything by placing a limit order in your brokerage account. With a cash secured put, you get paid to place the limit order.
Out-of-the-money simply means that the current price of the stock is higher than the strike price of the option, meaning that you would get more money selling a stock in the open market than exercising the put option. Exercising an out-of-the-money put option would make the buyer of the option lose money.
After years of trial and error, I found the most optimal strike is at least 10% less than the current stock share price. This is a nice sweet spot where the option premium isn't so low that its not worth taking the risk, but also gives the stock price some room to move. Sometimes there are opportunities to sell at 15% or even 20% less than the current share price. It is a balance between going as low of a strike price as you can while still making a reasonable profit in selling the put options.
Yes, ideally you want to get paid for selling the put option (placing the limit order) and have a portion of your buying power earmarked for this put option you sold, but not actually used to buy stock. Then if the put option expires worthless or loses significant portion of its value, you exit out the position while keeping the money you were paid. Your capital is untouched and ready for your next cash secured put selling.
It boggles my mind why financial brokerages warn its users about the high risk dangers of options as if they don't want you to be part of the game. I recall reading about warnings of losing your entire investment in options trading. IMHO, the only time you lose your entire investment in options is when you buy options outright. When the underlying stock does not work out the way you want to, yes the option contracts you bought is 100% worthless. Don't buy options. Sell instead. Also there is nothing complicated about options on stocks. It is simply trading contracts on stocks; contracts that stipulate when and how much. This strategy is in essence a limit order on a stock you don't mind owning. Simple as that.
Absolutely. This is why there is nothing complicated about this strategy. You use the screener, look for companies that you absolutely would not hesitate to invest in regardless of the options market, and sell a cash secured put on this company's stock. If you end up buying the stock, you would have bought it at a discount.
Because the worst case scenario of this strategy is ending up owning the stock, which if you ask any legit financial advisor, should be a long term investment. This means owning the stock, not selling if there a dip or bad news, and believing in the company. With that said, if you want to buy a stock, to mitigate some risks, ideally you want a large established company that isn't going anywhere and will exist for the next 20 years. In fact, $10B is actually very low and the best trades are on large, blue chip stocks with $100B+ market caps. However, if you want to sell put options on an emerging company, which are inherently more risky, but you believe in them, by all means. You just won't see such companies listed in the screener but that does not mean you shouldn't trust your gut instinct and trade on the companies you believe in.
Yes, this strategy requires you to have some upfront capital, in case you need to buy the stock. No, this strategy is not going to get you rich overnight or even within a year or two. The simple reason you would use this strategy is to have a conservative consistent income stream from options selling. There is no architecting complex spreads, watching each Greek value during the day and trying to beat the market. If you are looking for explosive profits, if you think you can beat proprietary trading funds trading in the market, and you don't mind taking on high risk positions and potentially lose significant amount of your money, then go for it. Those spreads that they ask you to trade with, when the position turns against you and you have to close it out at a loss, that money is NEVER coming back. In this strategy, the worst case scenario is you end up owning the stock at a discount, and you simply hold it until the price recovers, so the loss is only showing on paper and not immediately realized.
Here are some of the features of a membership.
I find the opportunities for you and you decide if any of the companies are worth your time. You are in total control and only you can decide which company you are comfortable investing in long term (for the worst case scenario of ending up buying the stock).
I am here to help you. I want you to make consistent income from selling put options. Contact me to discuss any questions that you have.
If you don't find value in your membership, cancel anytime. You will be prorated refunded no questions asked.
To get a sense of how this strategy works, you will see all the past winners and losers as well as a hypothetical total P/L if a trader were to take every single position that the screener showed.
Monthly or annually, the cost of a membership can be easily recovered by a single trade. Undecided? Join the free plan for limited access.
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It is up to you and the strike price vs current price. If you got assigned and the current market price is close, you can actually sell call options (covered calls) to make additional profits. Sometimes though, the volatility ends up so low that it is not really worth it, or you are too far away from the current market price.
The market data is out there and you absolutely can devise your own research system to find opportunities. All I am doing here is surfacing the type of put options opportunities that has been working well for me and what I usually look for. I am also here to help with any general options knowledge questions. Again if you find no value in a membership, then just cancel.
From my experience, you really should have somewhere around $40-50k to start. You can definitely start lower ($20-30k) but you will quickly find that it will limit you to just a few opportunities. I absolutely do not advocate using margins and frankly if you want to use margins, you need to be prepared to be margin called. I've had my fair share of assignments and I cannot imagine if I actually did not have the money to cover the position.
As the first principle of investing is understanding that short term stock prices are random numbers, you can understand why I never sell options beyond 2 weeks. You just never know where the price is going to go. The more time for it to move, the more chances that it will move against you. Sure, there maybe a high premium 20% out-of-the-money put options to be sold on a stock, but if the expiration is something like 30, 45, 60 days away, who knows what is going to happen during that time, and that is a lot of time.
That is entirely up to you, just make sure the brokerage offers options trading and cash secured put selling.
Absolutely not! I am not a financial planner and am not offering investment advice. The trades presented as well as the screener results should not be taken as any form of financial advice. There are financial risks involved in taking on any monetary transaction that the screener presents. You ultimately decide on your own what to trade.
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