What Are the Best Strategies for Selling Put Options?

Selling put options is a more conservative strategy. The seller of a put option collects an option fee and becomes a holder of a contingent liability. The amount of the liability is uncertain. In general, selling options will benefit from reduced volatility. If the counterparty exercises, the put option seller needs to hold the short position in the underlying.

Sell put options

Selling put options is a more conservative strategy.

When expected

With certain

Example: The investor sold 1 put option with a strike price of 100 and received a premium of 2 from the buyer

Due date

The real risk of a short put is the difference between the current market value and the strike price minus the premium you get from selling the put. This tells people a conservative investment criterion when selling unprotected put options: If the price of the risk level is offset by the premium, you think it is a reasonable price for this stock, then selling unprotected put options is safe. But you must be willing to buy stocks at this price. Once the short put option is fulfilled, you can just hold the stock and wait for the price to rebound, or make up for the book loss by selling a protected call option. The point is, in some cases, even if you are a conservative investor, you may still want to sell unprotected puts.

Consider this situation, the decline in share prices has become part of the decline in prices across the market. You're pretty sure that prices will rebound in the near future; but considering the company's fundamentals, earnings per share, dividend history, and tangible value per book, the current price level is quite low. In this case, you may not buy the stock right away because you have two options regarding options. You can invest in call options in order to profit from a price rebound, but this requires capital investment; or you can sell unprotected put options and get premiums. Inflows of funds are always better than outflows, but as the cost of increased funds in your account, you also bear the risk of performance. Either way, as long as you are confident that the price will rise in the near future, selling unprotected puts at this time is at lower risk than at other times. For example, when stock prices have risen sharply, selling puts is as recklessly out of time as buying call options. We believe that prices will work in a certain way, and when we find overbought and oversold conditions, it is trustworthy to choose an option strategy in a timely manner. These situations have created opportunities to choose the timing of options trading, and unprotected put options can bring greater opportunities through construction, while the associated risks are relatively low.

The well-known correlation between risk and opportunity occurs under normal circumstances. However, changes in the value of the stock market will send a signal that short-term adjustments are imminent. In order to reduce the original cost price of the stock or protect the book return, you can use long or short call options at this time. This is different from the speculation of reverse investors, in which investors choose high-risk stocks that may bring high returns, and may also cause high losses. A sensible strategy is one that meets your conservative investment guidelines, including carefully choosing when to use options in the event of a stock price outbreak. This strategy is considered conservative when you prove that the company's fundamentals are still strong and happy to buy the stock at the strike price.