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BEST STOCKS FOR TRADING NAKED AND CASH SECURED PUTS

The subject of “what stocks to sell short options” is very subjective, and at the end of the day it all comes down to your own way to analyse a business.

There are plenty of ways to analyse a business in terms of quality. Some investors may look for a business that has positive cash flow, some investors may look for only blue chip stocks, some investors may look for positive sheet balance, some investors may look to trade growth or value stocks only, some investors may only trade stocks part of a specific industry sector.

But when it comes to trade derivatives, there are many other factors to take in consideration and the financial side of the business itself may not be sufficient to define a good business to trade stock options or not.

Remember that the concept of trading derivatives, mainly naked options is a topic for advanced traders. But nothing that an average investor that is willing to learn the ins and outs can no learning. Like any career in life, we need time and a lot of real live experiences to learn the profession properly for us to be considered experts on that subject.

A doctor doesn’t become a great doctor overnight, it takes years of study and working experiences, and investing is not different. It is quite surprising how people can think that they can go online and purchase a $999 stock option trading course and overnight start to make millions, it is a fool game.

It doesn’t take much effort these days to find people selling courses on YouTube and promising trading signals for $19.99 a month and claiming that they can predict the stock market direction.  I will give you one piece of advice that you can take with you forever as a trader or investor, every time you hear the word, “Predict” just close the page or change what you are doing straight away, because this is the biggest scam online. Nobody can or will ever be able to predict stock market direction, because no matter how good you are in terms of analysing the stock market, either by technical analysis or fundamental analysis, there isn’t anyone or any mathematical model that enables us to have any prediction about the stock market.

Therefore, in our point of view, the best way to do so is to always be invested and watch your position size and make sure that you diversify your investment properly, because the market can go down to 1000 or can go up to 10,000 points without any major correction, nobody knows it.

In this video below Steve Weiss gives the best advice ever, which is exactly what we think here at Unison Trading, so watch the video and let us know in the comments below what you think about the video.

And another very good way or approach that we use here at Unison Trading is to always make sure that we trade high quality stocks, because no matter how much the market pullback or sell-off, a high quality business will always have a better chance to recover than an average business.

By the if you want to learn how we analysis a business to trade stock and stock options please click on the link below

By reading this article we guess that you know or are aware of what trading derivative means or in other words what is trading short options. Because if not, please feel free to read our FREE article “ COMPLETELY GUIDE TO SELLING CASH SECURED PUT” where you will learn how to trade short options and more specifically cash secured put and naked puts.

Now let’s get deep into the subject of “What makes a good stock or business to trade stock and stock options”.

As a full-time Trader/Investor, I highly recommend tastytrade as a broker to trade options

By taking advantage of tastytrade\’s $100 to $2,000 bonus, you can get started trading today with the best option trader broker

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There are few characteristics that a high quality business needs to have in order for us to consider it to be viable to trade stock and specially options, and the characteristics are:

1.       High Liquid Stock
2.       High Volume/Open Interest
3.       Many DTE
4.       Enough Premium and Not a small cap stocks
5.       High IVR (Implied Volatility Rank)

High Liquid Stock:

When it comes to liquidity, we can start to look into a few aspects that will define or show that a particular stock is high liquid.

And one of them is the Bid/Ask spread of the option. The Bid and Ask is where we investors can buy or sell an option or stock.

Example:

We always Buy on the Ask

We Always Sell on the Bid

But of course we can also place a limit order with a mid-price, and wait to see if we can get filled, but if we really want to get into a particular stock or option, the only way to guarantee almost 100% sure that our orders will get filled, is placing the order at the Bid or Ask price.

Ticker: SPY

The table above represents a 51 DTE option on the SPY, which is an Etf that tracks the SP-500 performance. When it comes to liquidity it is as good as it can get, as the SPY is the most liquid product available to trade in the stock market.

As we can see the Put side, the Bid/Ask spreads of the 382 Strike Price is only 4 points wide and on the Call side, the Bid/Ask spreads if only 12 points wide.

And the reason why we always need to make sure to look for narrow spread options to trade is, because during trade management, it will help us to get filled quickly and most of the time at the mid-price which at the end of the year it will make a big difference on our profits.

And just a quick reminder that doesn’t matter if you trade derivatives (Options of Futures), swaps, stocks, commodities or any other type of products, if you don’t look after your position size you will lose money no matter what, period.

Also when trading derivatives, we need to keep updated our trading journal when selling short options, and we also need to make sure that we always manage our ITM trades by Rolling the trades for a Credit and not for a Debit, and you can also learn how to do it by reading the “HOW TO MANAGE CASH SECURED PUT” by just clicking on the link below and getting instant access to the article.

And if you want to be part of our community of investors and learn why our risk management methods are so effective, just click on the button below. Our methods enables us to change the rules of the game in our favor, so we don’t need to wait for the stock to come back to our sold strike price to be able to close the trade for a profit, but rather we can apply some of our advanced trade management and be able to meet the stock half way, enabling us to close the trade with more premium collected than the initial premium received at the beginning to the trade.

High Volume/Open Interest:

Volume and Open interest and two very important technical concepts that is also part of the option liquidity description. But in simple words, volume and open interest are simply the number of contracts that are traded on a given period or the trading day, and open interest describes the number of contracts that are still open or active but not settled yet.

Ticker: SPY

Using the SPY again as an example; we see in the above picture how much liquid each strike has. All the strike is trading above thousands of open interest, which is a very good starting point for us to have an idea of how much a specific option needs to have for us to define it to be a liquid option or not, so anything above a thousand would be a very good and liquid option to trade.

Various DTE:

As well as being an option with high volume and open interest is very important, we also need to make sure that we trade options with different expiration dates. And the reason for it is that during trade management it will help us in terms of flexibility with our strike prices.

Our goal during trade management, especially with deep ITM trades, should always be on our strike price. But an option with short term duration doesn’t provide us with enough premium, and if we need to do some work on our strike price, not having enough premium becomes almost impossible to do any work on the strike price.

Ticker: SPY

In the picture above we can see that the ticker SPY as well as monthly expiration cycles also have weekly options cycles, which is a big plus for us during trade management.

Note: In these examples I am using the etf “SPY” but these trading requisites should be mandatory for any stock that you may trade.

Also don’t forget that the stock market and the stock option market are not correlated products, because a particular stock market may be a very liquid stock product but at the same time the same stock may be a very low liquid stock option product.

If you want to learn how we choose our High Quality stocks to trade derivatives and Stocks, click on the link below to join our community now !!!

Enough Premium and Not a small cap stocks

The correlation between small cap stocks and stocks that have a small premium are very obvious, as we cannot expect to get paid on a $30 stock, 30 Delta short put the same amount of premium as trading a $500 stock, 30 Delta short put.

A lot of people online recommend new traders to start trading option on very small price stocks, but although I think it is quite acceptable this idea, I just want to let you know that doing it is all about learning and grasping the rules of the games, as you will not be able to make a living trading these types of stocks.

However, here at Unison trading we are big believer that trading real money is always better off than wasting your time with paper trading, but although paper trading is good to get a good understand of the software’s, in terms of trading knowledge we think that it doesn’t do any good at all to new traders, because paper trading takes off one very important and probably the main aspect of being a profitable trader or not, the discipline and psychology of trading. So, although small stock prices trading is all about learning and not making money, you will always be better off trading small cap stocks than paper trading, so go for it.

Ticker: ITUB

This is an example of a small cap stock that is trading at $4.95 per share, and we can see that the only strike worth trading is the ATM strike of $4.5 because anything OTM is pretty much trading for pennies.

Therefore, as long as you are aware that it’s all about learning the process and not making money, it’s all good and we think it is a valid approach.

YOU MAY ALSO BE INTERESTED IN READING AND LEARNING ABOUT OUR 5 CONCEPTS OF ANALYZING A BUSINESS TO TRADE STOCK AND STOCK OPTIONS

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High IVR (Implied Volatility Rank):

The last concept that we are going to look at, and a very important entry requirement, is the concept of IVR.

IVR which stand for Implied Volatility Rank, is the calculation of between current implied volatility and its 52 week high and low, and the calculation is done as follow:

Please Note: The IV or implied volatility is not capped at 100, unlike the IVR which is capped at 100 as we use it to rank the current implied volatility from 0 to 100, as the same suggest.

For example:

Current Implied Volatility = 100

52 Week Low = 40

52 Week High = 150

In the above example, we have the IVR at 75%, which is a highly considered level. And if you are wondering what a highly considered level means, and it meant that, for us here at Unison trading with the IVR trading at anything above the 50% mark is a very good point for us to start to look for trading opportunity sell derivatives.

But remember that, like anything provided in this site, there is no recommendation for advice to buy or sell any security, so if you take the concepts above into your own trading, do it at your own risk, and also try to make your own rules and guides that you feel comfortable with.

These concepts in defining a good stock to trade stock and stock options are just what we use here at Unison Trading, but different inventors use different methods and approaches when searching for high quality stocks and entry requirements.

Although these 5 concepts covered during this article should put you in a very good position when selecting business to trade stocks and stock options, don’t take these concepts as a set stone rules or guide, but rather as a trading reference when building your own entry concepts.

When comes to trade stock and stock options there are lots of other functionalities and approaches to it, so these are just few characteristics that makes an option to be a very good option to trade, but we have other concepts that we take in consideration before trading options, especially the concept of high quality stocks, so if you are interested in learn in more details how we define and select business to trade stock and stocks options, just click on the link below and join our trading community.

Trade Example:

This is a quick example of what kind of trade management we do here at Unison Trading.
Ticker symbol BA (Boeing):

On Feb 10^th ,2020, Boeing, the ticker symbol BA, was trading at the $335, and we found the level of $310 to be a good support level opportunity to sell a short option on Boeing, so we enter the follow trade:

We sold the OTM $310 Strike Price and initially collected $350 per contract on a 44 DTE trade, which would provide us with an annualized rate of return of 9.47%. The annualized rate of return for this particular wasn’t much due to the very low volatility at that time, but considering that the trade had an 8.51% downside protection, we found that to be a very good trading set-up.

Trade Profit and Loss Diagram:

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

On 20^th of March 2020, the stock dropped all the way down to the $95.00 price level, and at this point we started to apply our Advanced Risk Management.

During trade management, we managed to decrease the sold $310 Strike Price from $310 to $202.5, a decrease of 34.7%, which in normal circumstance an investor would need to wait for stock to be trading back to the $310 level to be able to get out of the trade, but because we have many tools that allows us to deal with any type of bad stock market conditions, we managed to work out our strike price down $107.5 or 34.7% which was a significant amount.

And on June 6^th, 2020, as the stock price traded all the way up to the $231 price level, we had the opportunity to Buy Back the option for $0.02 cents.

For the whole trade we had the following Rolling Trades:

• Roll 1: Credit Received $1.25
• Roll 2: Credit Received $0.45
• Roll 1: Credit Received $0.85
• BTC = $0.02

Total Trade Premium collected: ($3.5 + $1.25 + $0.75 + $1.75 – 0.02) = ($7.23) = $723 per contract.

• DIT: 117
• Total Premium = $7.23
• Final Annualized Rate of Return: 11.17%

Therefore, our final Annualized Rate of Return was greater than we had at the beginning of the trade, the final 11.17% annualized rate of return was 1.7% higher than the initial 9.47%.

But the main thing you should take as a final takeaway from this trade management example, is that fact that we managed to decrease our sold Strike Price from $310 all the down to $202.5, which in terms of applying risk management on a bad trade, it is good as it can get.

We as an option seller, we always need to make sure that we put risk management first on every single trade, and here at Unison Trading all our risk Management is done prior to entering the trade, because we do believe that once we press the trigger it is too late to worry about it.

If you are interested in learning more how we manage our trades, just click on the link below and join our community for investors and learn and trade with us.

“Remember that, we don’t get paid for trading, but rather from making great decisions at the right time”

Having a journal with all the details of our trade entries and trade management, is the best way for us to keep track of our trade Break Even point.

Let’s have a look at an example of a naked put trade where we Roll the trade until we manage to close the trade for a profit.

Trade Notations:

• S = Current Stock Price
• K = Strike Price
• P = Premium
• DTE = Days to Expiration
• IVR = Implied Volatility Rank
• Moneyness = OTM
• IV = Intrinsic Value
• EV = Extrinsic Value

In this example the trade inputs are:

• S = $60
• K = $50
• P = $1.50
• DTE = 30
• IVR = 30
• Moneyness = OTM
• IV = $0
• EV = $1.50
• DIT = Days in Trade
• BTC = Buy to Close
• STO = Sell to Open
• BE = Break Even

With the stock trading at the current price of $60, we sold the $50 Strike Price Short Put for a Premium of $1.50 with 30 DTE, and the option moneyness was OTM, which means that the current stock price is above the sold strike price, and if nothing change until expiration date, the trade will be expiring worthless.

With 20 DTE or 10 DIT, the stock dropped to $47.50 and the option is $2.50 ITM. At this point we can manage the trade by rolling the option for a future expiration date or simply let the trade play on until expiration date.

If the option still ITM at the expiration date, we will be getting assigned 100 shares per contract sold, and at this point we can sell the shares at the market price and re-establish the same trade by Rolling the option forward, or just get hold of the stock and starting selling covered call on it, but either method we choose we need to keep track of all the premium collected so far.

Let’s see the example where we just roll the option for a future DTE, by doing the  following procedures:

Roll 1: Trade expires at $47.5

• BTC the $50 Strike Price for $2.50
• STC the same $50 Strike Price for a Credit of $0.50, with a new 30 DTE.
• Net Premium = (1.50 + 0.50) *$ = $2.00
• New BE = $47.50

And after the 30 days the volatility decreases from 45 to 40 as the stock recovery from $47.5 to $48.50, but the option still trading ITM, so at this point we can do the following trade management.

Roll 2: Trade expires at $48.5

• BTC the $50 Strike Price for $1.50
• STC the same $50 Strike Price Credit of for 0.75, with a new 30 DTE.
• Net Premium = (2.00 + 0.75) *$ = $2.75
• New BE = $47.25

Note: At the point of the second rolling, we could just have sold the stock outright at the market price for $48.50 and still making $0.50 on the trade, which is the ($48.50 – $50 + $2) = $0.50, but we opted to keep managing the trade in this particular example.

But here is where when most of the investors get the maths wrong, when we just did our second rolling, in our brokers trading platform the option would be showing the $1.50, which is what we paid for the second rolling. And at some point once the stock starts to recover, the option will be starting to decay as well, for example, if the stock is trading at the $49 price, we can also close the trade, by buying the option back for $1 and keep the $1.75 profit.

But in some cases if the stock is trading deeper ITM, like $45 for example, on the second roll we would have paid $5.00 to roll the trade. And at the broker trading platform the option would be showing $5.00, which would be the price paid for rolling the option, and at some point if the stock start to recovery and the option start to decay, let say to $4.00 for example, some investor thinks that the $1.00 decay difference is profit, which is not, because our breakeven on that option would, the $5.00 minus the $2.75, or $2.25, we we need to be careful we dont lock in loss during trade management.

The $2.25 option buying back price is the point where we can start to think about buying back the option for a small profit or scratch, or just wait to see if the stock expires OTM, so we can keep the full $2.75 premium collected during this trade.

Therefore, it is very important for us to ignore the brokers platform option price, and keep focus on our BE point calculations.

And after the 30 days the volatility decreases from 40 to 25, and the stock finally is trading OTM again, and at the expiration date the stock recovers to $52.50 and the option expires worthless.

• Net Premium = (1.50 + 0.50 + 0.75) *$ = $2.75
• New BE = $47.25

There are plenty of others trade management where we can significantly improve our final profit on a particular bad trade, and this is what we do here at Unison Trading, but no matter which approach you may take, just make sure that you always keep track of all the rolling credits received during trade management, so you are aware exactly where the final trade BE is.

FAQ

Q: What are naked and cash-secured puts?

A: Naked puts and cash-secured puts are option trading strategies where the trader sells put options without holding a short position in the underlying asset (naked puts) or holds enough cash to cover the potential purchase of the underlying asset if the put option is exercised (cash-secured puts).

Q: How can I identify the best stocks for trading naked and cash-secured puts?

A: Identifying the best stocks for these strategies involves considering factors such as high implied volatility, strong fundamentals, and a bullish outlook on the underlying stock. Conducting thorough fundamental and technical analysis can help in selecting suitable stocks.

Q: What are the advantages of trading naked and cash-secured puts?

A: The advantages include potential income from collecting option premiums, the ability to generate profits in neutral or bullish market conditions, and the opportunity to acquire stocks at a lower cost basis if the options are exercised.

Q: What are the risks associated with trading naked and cash-secured puts?

A: Risks include potential losses if the underlying stock price declines significantly, the obligation to purchase the stock at the strike price if the option is exercised, and the possibility of assignment before expiration.

Q: Are there any specific strategies or criteria for managing naked and cash-secured puts?

A: Traders can employ various management techniques such as rolling the options to different expiration dates or strike prices, adjusting position sizes based on risk tolerance, and using stop-loss orders to limit potential losses.

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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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