≡ Menu

Tips On Selling Put Option

Open ZERO Brokerage FREE Share Trading Account - Buy and Sell Stocks Without Brokerage - Set GTT (Good Till Triggered) Orders on System and Forget

Traditional brokers charge a lot for brokerage; however, this broker does not charge anything for stock buying and selling. Also, you can set GTT (Good Till Triggered) order after buying a stock, so that the system can sell the stock automatically at your target price even if you are not monitoring the market. Only 25k is blocked for option selling with hedge. Also, you get a lifetime free account in Sensibull (virtual trading app & strategy builder) which charges Rs.800/-+GST a month. Learn option hedging strategy if you open an account today. It takes 5 minutes to open an account online. Click here and Open Free Account with Them Today >>

Selling a put option is a slightly bullish strategy wherein the stock has to move up else the put seller may face a loss. Its better to sell a put option slightly OTM – Out of The Money. You must have read in lots of places that its better to sell an ATM (At The Money) put option, but my experience has been good with selling put options slightly out of the money. Out of the money put option gives you time to decide to book profit or take a stop loss.

Suppose you are very bullish on a stock then there are four things you can do:

1. Buy the stock in cash
2. Buy its Future
3. Buy an ATM Call option
4. Sell an ATM or OTM Put option

No. 1 is the best if you have enough cash to buy the stock and hold. There is no tension or worry about the trade finishing on expiry day. You can hold the stock till you retire.

No. 2 Future is the most dangerous trade of all four. In this month Jul, 2019 Yes Bank is going up 10% one day and falling 10% the next day – imagine the situation of a future buyer or seller caught on the wrong direction. But if it was a call or a put buy the trader would have managed to escape with a limited loss.

No. 3 is ok but you must have strong view on the stock. Plus the IV of the stock must be low to buy an option whether its call or put. But the biggest enemy is time value or theta decay. Sometimes even when the option buyer is right in direction, he loses the trade. Read this post to know issues with buying options.

No. 4 is good option if the trader wants to eat the time value premium of the option. However a stock crash might be dangerous so the trader must have a strong bullish view in the stock.

You must read news about the company before selling its put option. A company having financial, management or any other issue do not qualify for this strategy. In fact no trades must be done on such a stock.

After reading such news will you trade in Yes Bank?

One man alone lost Rs 7,000 crore in YES Bank rout since August 2018

Yes Bank Shares Fall 13% After Earnings Miss

Yes Bank drops 20% as bad loans mount, provisions surge

Yes Bank’s investors are desperate for a buyer amid fears of a massive quarterly loss

Obviously, the answer is NO. Still, look at option chain and volume in Yes Bank as on 18-07-19 – there is heavy volume in options trading:


This is speculative trading at its best.

If you are reading this – make sure not to trade such stocks going in a bad new phase. It does not matter how bad the news is. Avoid trading in such a stock. You may suffer even if you short the stock because you do not know when the stock will rebound.

So selling a put option in such a stock is a Big NO.

What you can do if you have a very bullish long-term outlook in a stock? You can consistently sell its OTM put option month after month. Of course you must keep a limit to the loss you want to take in the trade. If that is reached you have to stop the trade. Same with profit booking. The stock will not keep rising forever so put a stop to your profits too if you are selling a put option of the stock consistently.

If you compare the results between a stock buyer and a put option seller you will see that the put option seller wins more times when the stock falls to the limit of the strike price of the option sold, stays at the same place at expiry, or goes a very small percentage.

What should you do when you sell a put option?

Keep limit to the money that you are willing to lose in the trade. Its not required for you to take this trade till expiry if the stock has fallen down. You are free to exit the trade if you see that the stock is falling and reached the level of the put option sold.

Note that selling put option strategy is a neutral to bullish strategy. You can sell a put option if the result of the stock has come better than expected, or the stock is not moving much or is witnessing huge spike up everyday.

Important points to note:

1. Do not use all money in your account to sell a put option.
2. Always hedge your put option sold.
3. Keep extra cash for adjusting the position in case you want to close the losing sold option and move to a lower strike.
4. Standard deviation volatility of the stock will give you an idea of how far you can sell a put option. However this does not guarantee that the stock will not hit the strike – but it does give you a general idea.

TheOptionCourse.com © Copyright Since 2013 ® All Rights Reserved

Click to Share this website with your friends on WhatsApp

COPYRIGHT INFRINGEMENT: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.

INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However, every trade depends on the trader and his level of risk-taking capability, knowledge and experience. Moreover, stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.

DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. I do not give tips or advisory services by SMS, Email, WhatsApp or any other forms of social media. I strictly adhere to the laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles on this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given on this website. I am not responsible for any investment decision you take after reading an article on this website. Click here to read the disclaimer in full.

Disclaimer | Privacy Policy | About Me | Conservative Option Course | Bank Nifty Weekly Options Strategy
Find 200+ testimonials of my course on these pages too posted year-wise:
What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020
Testimonials Year 2021
Testimonials Year 2022
Testimonials Year 2023
Testimonial of one of my client making 25k per week
Emotional Testimonial by a Young Woman Trader and Her Mother
Difference Between other Courses and Mine
What others charge for online courses
What People Say Just After Doing My Course
Bank Nifty Course Testimonials

My student gets the Winner's Certificate of Zerodha 60-day Challenge - Click here and Open Stock Buy and Sell Free Account with Them Today!!!

Traditional brokers charge a lot on brokerage, however this broker does not charge anything for stock buying and selling. Also, you can set a Good Till Cancelled order after buying stock so that the system can sell the stock automatically at your desired price even if you are not monitoring the market. Plus only 25k is blocked for option selling. It takes 5 minutes to open an account online. Click here and Open Stock Buy & Sell Free Account with Them Today >>

About the author: Dilip Shaw I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 0 comments… add one }

Leave a Comment