Introduction:

 Selling naked and cash secured puts is, without a doubt our #1 strategy as they contribute great returns while being immensely flexible in terms of trade management.

Investors and traders sell naked and cash secured puts willing to purchase the underlying security at a discount price.

Once they get assigned by the option buyer, they will be obligated to purchase the shares at the initially sold strike price, but this would be the best outcome for the trade, because the option seller would be able to purchase the stock at a lower price than the person that bought it at market price.

 There are two main reasons for trading Naked and Cash Secured Put. And the two reasons are; Selling Puts for Income versus Selling puts with the intention to purchase shares at the discount price.

As an option seller, it is our responsibility to make sure that we fully understand our main motivations in selling put options, so we can make ourselves prepared for any trade outcome by keeping our focus on managing our efforts and time.

 Selling Naked or Cash Secured puts is a positive delta strategy, so the trader must have at Neutral to Bullish outlook on the stock.

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Options Types:

There are four type of options order that we can use to place and close our trades, and the for types are:

• Buy to Open
• Sell to Open
• Buy to Close
• Sell to Close

In later articles will cover in more detail each of the above option types. But just a quick overview, we as a Naked and Cash Secured Put option sellers, we will always start our trades using the STO or Sell to Open order, and in order to close or buy back our sold options we will be always using the BTC or Buy to Close orders. More in future articles.

Trade Example:

Sell 1 XYZ 50 Short Put

Premium: $1.50 ($150) per share (you need to take in consideration commission for this example)

Purchase Cost: Strike Price – Premium = ($50 – $1.50) = $48.50 per contract

 The option seller will be receiving the premium upfront, but at the same time the option seller will be obligated to purchase the shares at the agreed strike price if the stock closes below the $50 mark at the expiration date. But remember that, for most of the US stocks, for each contract sold it is equivalent to 100 shares of the stock.

 Therefore, for the above example, if the option seller gets assigned, which means the stock closed below the $50 at the expiration day, the investor would need to have in cash reserved the amount of $4,850 per contract sold to fully cover the obligation of the shares purchase.

The initial premium is used to reduce the costs of purchasing the shares. In this example the final cost for the stock would be $48.50 per share, or $1.50 less than if the investor had bought the shares at market price of $50 per share.

 In this example we are not using trade management, and If the investor is still willing to hold the stock, then the investor just needs to make sure the account can cover the amount required to buy the shares, in this $4,850.

However, if the investor no longer wants to buy the shares, then the investor just needs to sell the shares straight after being assigned the stocks.

And of course, the other outcome is what we call the income outcome. If the stock closes above the $50 mark at the expiration date the investor can keep the full premium of $1.50 and re-establish the position or move on to another trade opportunity on a different product.

Why you should sell Naked or Cash secured Put:

1.       Acquire high quality stocks at discount price
2.       Stock doesn’t need to move in order for the trade to be profitable
3.      Make money on both Neutral to Bullish market
4.       Very lucrative in right volatility conditions
5.       Time decay is a big trade advantage

Please Note: We are not taking into consideration trades that think that they can constantly sell put options every day on any type of stocks with no risk management at all, because this is just gambling. As an option seller, we always need to make sure that every single trade meets our trading plan entry criteria, and this is something that we cover in great details in our UNISON INSURANCE TRADING MODEL, click on the link below and get instance access to our trading community, and learn how to be a consistent, patient and disciplined profitable trader.

Because no matter how good you are at picking direction, if you don’t follow a well-defined trading plan with an advanced risk management, you will lose money trading options, period.

When applied properly with a high risk management approach, selling options can be a very good and consistent way to make money in the stock market. But you always need to make sure you fully understand that, we don’t get paid for trading, but rather we get paid for making great decisions at the right time so discipline and patience plays a massive role in being profitable or not selling stock options.

The Risks in Selling Naked or Cash Secured Put:

The main risk is that, and business can go bankrupt because no business is too big to fail. But of course in the case of particular stocks like the blue chip stocks such as; Apple, Microsoft, Amazon, Facebook and so on, the odds of these types of business going bankrupt in a short period of time is almost zero, but it can still happen.

Wrong strike price selection, wrong delta, wrong DTE (Days to expiation).

When it comes to strike price selection the investor needs to define his/her style of risk averse style Because some investors may look for a better premium capture, but a different investor may look for a better downside protection. So, once you define what suits you best you can start selecting the right strike price, here at unison we mainly trade in a range of 16 to 30 deltas with cycles of 30 to 60 DTE, which is a level we can maximize our returns by at the same time minimize our risks.

And another and the main reason people lose a lot of money selling options in general, is to be over leveraged on single trade. If you take traders that lost a lot of money selling options, you will find one thing in common, trading large position size.

All these trade input parameters plus our own Risk Management are covered in details in the UNISON FINANCE TRADING MODEL,

click on the link below and get instance access to our trading community, and learn how to be a consistent, patient and disciplined profitable trader.

Remember, although the selling option can be very complex sometimes, we make it very simple in our trading course, because we do believe that KISS is the best approach in trading. Keep It Stupid Simple.

LEARN FOR FREE OUR TWO MOST POPULAR STOCK OPTION STRATEGIES

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Trade Maximum Profit:

Option sellers potential trade profits in general, are limited by the amount of premium received.

No matter how high the stock price may jump, the profit will always be capped by the amount initially received in premium.

Maximum Risk:

Stock can go to zero, so the risk would be the same as the investor that bought the stock outright.

In this example would be ($48.50 * 100) * # of contracts = $4,850

Therefore, because of the initial premium received, option seller’s maximum losses will always be slightly less than the outright buyers.

Break Even:

Strike Price – Premium initially Received

In this example would be ($50 – $1.50) = $48.50

Trade Profit and Loss Diagram:

1 Short $50 Put at $1.50 premium per contract.

Stock Price Trade Outcome:

Passible trade outcomes in relation to the stock price at expiration date:

Conclusions:

Like we have mentioned in this short Naked and Cash Secured Put strategy, there are way more to using the Naked and Cash Secured Put strategies. But this article should make you aware of the basic principle of the two strategies.

And remember that, when an investor initiates a cash secured put trade, the investor needs to be willing to hold the underlying is case if the option gets assigned. Therefore, being aware of this particular scenario being assigned wouldn’t be a big concern for the option seller.

And for the put option to be ITM (more about option moneyness in later articles) the option needs to be trading at least 0.01 cents below the strike price to be considered ITM., otherwise the option will be expiring OTM, or worthless.

Cash secured puts enable investors to generate passive income from the initially premium received, and more experienced investors can make use of leverage to maximize the gains.

But please make sure you know that leverage is a double wedge sword, it can work on both sides, so make sure you are on the right side by fully undertaking the risks involved in using leverage in trading.

Here at unison we use leverage to take ourselves out of trouble and not into trouble.

PUT YOUR KNOWLEDGE INTO PRACTISE: JOIN OUT TRADING COMMUNITY

Here at Unison we show our Real Trading Statement Results and we dont hide anything from our clients … Real Statements from Interactive Brokers . Our Trading return goals are very Realistic & Achievable and Honest, that is why we are consistently profitable year after year.

If you are after honest traders that is really profitable and dont sell BS and unicorn type of returns for clients and would like to trade like a professional investor with the long term goal in mind, you are absolutely in the right place.

Here at Unison Trading we are not concerned how many trades we put a day but rather how many quality trades we have traded on that day, so please don’t expect to join us and hoping for daily adventure and excitement, we take our trading and business very serious as we find it the greatest opportunity for us to create/maintain wealth and this opportunity is not done by excitement but rather professionalism on everything we do.

Although, here at Unison Trading we don’t trade looking for excitement neither for having fun, we are very aware of the Law of Large Numbers (Number of Occurrence’s), as we always make sure that our number of occurrences are in place so the probabilities can play out. Remember that the maths doesn’t lie.

Why Follow our Trade Alerts

• 100% Real Broker Statement (Interactive Brokers)
• Consistently Monthly Income
• Realistic – Achievable and Honest Results
• Lower the cost basis of your portfolio (stock)
• 100% Transparency
• Generate Increased return on investment
• Control Stock without owing it
• Leverage Capital
• Reduce Risk

And of course the main thing as a professional trader, Be Profitable .

What You’ll Get

• Real-Time Trade Entry
• Real-Time Trade Exit
• Real-Time Trade Management

All streamed live straight to your WhatsApp, so you can just check the alerts and place the same trades with nothing hidden.

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