🔥 The Risks of Selling Put Options: Is It Safe & When Should You Do It?

[@RickOrford]

🔥 Join me on Discord: rickorford.com/discord

[@austinehasz3907]

Thank you sir !!!!! You explain things very well I was always confused how this portion stuff works You break it down well

[@denko44]

I appreciate that you cover the risks. Other KZbinrs talk about the upside and hardly ever are honest about the risks.

[@RickOrford]

That’s true! I’m very risk adverse.

[@kennethng4805]

I am writing here to thank you for your information. After watching your videos. I was trying out selling put options. This is my third week doing that. It has been working out really well. This week alone, I made over $1600, and I am not even using all of my fund as the collateral. I only got 1 contract being assigned, which I personally don't mind to own 100 shares of it. Again, thank you very much for the videos. I have learned a lot.

[@richardbornemann806]

Great channel Rick. Here's a question. Let's purchase a stock, sell a covered call, and sell a put contract and also purchase a put with strike below the puts you sold. A 3 legged trade. Now, let's say the underlying stock has a bad earnings report and sells off 10%, and at expiration it is lower than the downside puts you purchased. Trying to figure out what happens. Your covered call expires worthless. The puts you purchased have increased in value quite a bit, but you are obligated to buy shares because you also sold puts. Does that make sense? Am I getting it? Thanks.

[@RickOrford]

Thanks for the kind words! If you buy a stock and sell a covered call, you want it to expire out of the money. This is the same as selling a put - you want it to expire out of the money so you can collect the premium. 3 Legged trades are bloated and hard to manage. Better to keep it simple. But, to answer your question, you said "purchase a put" below the puts you sold. That would be a debit spread - and it's not a strategy I recommend. I would, however, recommend a credit spread - and using puts, you'd buy a put at one price, and sell another at a lower price. The higher strike will protect the trade to a point where you have a defined risk. If selling spreads are something you'd like to do, I highly recommend using Option Samurai: rickorford.com/samurai Otherwise, using delta is probably all you need. Hope this helps!

[@richardbornemann806]

@@RickOrford This does help, and I get what you are saying. I did not know it was called a credit spread, and I have been using this. What I've been doing is selling covered calls and buying downside put, so a collar, on low volatility dividend stocks. That was a mouthful but it's all there. Very short expirations, a week generally, which allows me to control the rise and fall of the stock quite well so far. One example I'm using is Walgreens. Not exactly the bright shining object of the investment world, but going out 1 week to expiration the returns are great if annualized. Thanks again for the channel, I know it's a lot more work than it looks. I checked out Samarai last night, may consider it, and if I do, I'll go through your link of course.

[@RickOrford]

@richardbornemann806 thanks for the kind words! Keep up the good work!

[@davidschnall4788]

@@RickOrford you’ve got your debit and credit spreads backwards.

[@golg892]

Thank you. Phenomenal explanation

[@RickOrford]

Thank you for watching!

[@golg892]

Hi Rick, thank you for the content and excellent tips! I do have one question: If I close the position before expiration or before it reaches the ITM price, can I avoid the risk of being assigned and losing the premium? Would I also be able to keep a portion of the premium already collected if I do it this way? Thank you

[@Hazel66781]

I have a question: If I sell a cash-secured put with a strike price of 100 and then get assigned in two weeks when the price drops to 90, can I sell a covered call with a strike price higher than 100? If so, why would anyone buy it at a higher price when they can buy it at 90?

[@RickOrford]

If you’re assigned, you’ll buy 100 of the stock at the strike, no matter what its current price is. Once assigned, your contract is complete and you’d be welcome to do as you please- including selling covered call on them! Excellent question!!

[@Pteromandias]

Yes, I do this all the time. Why would someone buy it? Because it’s cheaper than it was when the price was at 100. And it’s cheaper than buying 100 shares of the stock. If the price goes up the value of the option goes up and it can be sold for a profit or exercised. On the other hand someone buying the 100 call from you could simply be buying to close out their short position which they sold when it was a higher price.

[@shresthadipen]

Your videos are awesome for options learning

[@RickOrford]

Glad you like them! Thanks for watching, and do let me know if you have any questions!

[@RickOrford]

🛠 The best tool to reduce risk of selling put options is Option Samurai: rickorford.com/samurai

[@kirkwilliams2127]

Great info. But what about selling Puts on stocks you already own?

[@RickOrford]

Nothing wrong with the idea- Remember- if you’re assigned, you’ll be buying more. If you’re ok with that, then you have a reason to move forward :)

[@Alvan915]

Hi Rick can you please make more in depth videos on barchart and option samurai thank you

[@RickOrford]

Deal!

[@RickOrford]

Watch out for Thursday's video!

[@traderxart9551]

Great content rick....watched the video, but have a question that I couldn't find an answer for. ..... So when selling put options, what happens if the option moves against you, so you sell a put option at 50 cents and collect the premium credit for 50 dollars and say 2 days later the stock has fallen hard after a huge earnings miss pushing each contract from 50 cents to now $6.00...thats now a loss of $5.50 ($550) x amount of contracts .. if I do not buy back the option and get assigned what happens to the loss on the contract? The $550? So a 30 strike price collect 50 dollars in credit, assignment means I pay $29.50 per share...however the option went from 50 cents to 6 dollars, a 550 loss to buy it back . If I don't want to buy it back and take the assignment do I incur a $550 loss on the option ?

[@RickOrford]

Thanks for the kind words. If the underlying moves down, and the premium goes up, you can hold it to expiration and wait for assignment. You’ll be buying the underlying at the strike price, regardless what the market price is. Or, you can cut your losses and buy back the put at the higher price. I’ve done both.

[@traderxart9551]

​​@@RickOrford thanks for the quick response.... But if the premium skyrockets to say 3 or 4 or 5 dollars or 10 dollars and I haven't cut losses as the stock keeps falling am I on the hook for the amount of money that's showing a loss on my sell put? Meaning if the 10 contracts I own at 50 cents which I receive a $500 credit now goes to 5 dollars a contract...am I responsible for the loss of $2000 on the sell put or does that all configure in the share price already as it's dropping and eventually assigned to me??

[@RickOrford]

@traderxart9551 with a put, you’re agreeing to buy a 100 stock, at the strike price if assigned at expiration. That’s why you only want to sell puts on stocks you’d actually like to own, because yes, you might end up owning them at the strike price- regardless of how much lowest they are trading at today! ps: have you joined my discord by chance??

[@HiepTRIEU-et3wh]

Hello Rick, What happens if the stock drops below the strike price before expired date. Let say the stock is trading at $35/share and I sell a put at 30 strike price and expire in 50 days, but in 5 days the stock falls below 30. Do I have the obligations to buy the 100 share because the stock is already below the strike price? And If I buy to close at the 30 strike price, do I still have some premium?

[@RickOrford]

You’ll only “have” to buy the shares if you’re assigned. This usually happens at expiration (if the option is ITM) however, it could happen at any time. If you the stock is nearing the strike, it might warrant closing it out… have a look at this for more info: m.kzbin.info/www/bejne/mXXXZn98jc-kbrM

[@aurinator]

What about selling barely ITM Covered Calls and Cash Secured Puts, anticipating that by expiration it'll go OTM? But taking advantage of the higher premium for ITM Options on at the point of sale. I think there might even be a name for that: ATM (At-The-Money) Options?

[@RickOrford]

Selling ITM/ATM options increases the risk of assignment. If you’re happy with the risk, ie entering into a buywrite, hoping for assignment, yes, you’ll get higher premium- and will likely be assigned. Only- you’ll lose out on the underlyings potential upside. As for selling an ITM/ATM put- I wouldn’t do it unless I truly believed there’s only one way for the stock to go… 🆙

[@YashPatel-oo3ld]

Hi Rick, the way you explain options has made it lot easier to understand, Tysm for this learnings. And ya, could you please make a demonstration video on how to use option samurai, it will be more helpful I suppose. Thank You, once again

[@RickOrford]

Thanks for the very kind words- will do!

[@YashPatel-oo3ld]

@@RickOrford my pleasure 😊

[@Aliancey]

Hi Rick. If my strike price is 100 and I Sold the put when price was 200, can I get assigned before the stock hits my strike price, assuming that it hasn't expired yet? Thanks

[@RickOrford]

While assignment on a sold option is possible anytime (with American style options, it’s exceedingly rare if the option is OTM.

[@jonschlottig9584]

I believe it! Good stuff!

[@RickOrford]

You and me both!

[@marksoberay2318]

I like buying the long w a longer date because you dont have a much theta decay and if it does plunge u actually make $

[@RickOrford]

Absolutely!

[@narendrapatel7183]

Hey Rick! I am very new trader and just buy and sell straight and never did Option trading Reference to this video I have a question as If I do put sell trade is I have to pay 100x Strike price at start or at the expiration date?

[@RickOrford]

You’d have to buy the stock only if assigned.

[@allisononyoutube5794]

You are amazing ❤

[@RickOrford]

Awe thanks!!!

[@sgimbal]

I assume this is the video I was asking for!! I think it would be cool to see live examples, but this is probably enough. 🍿

[@RickOrford]

I wouldn’t provide a live example as coordinating multiple exits for the sake of recording a video isn’t a good investing thesis. Not only that, showing how to do this would also require a specific video for each brokerage. The Order entry process is unique to each brokerage, however the lingo is usually the same. That said, the point will be 1) I like to exit when I’m approaching 80% max profit (and how to do it), and 2) consider exiting at >X% loss (again, and how to do it).

[@sgimbal]

@@RickOrford Awesome!! Thank you so much. You got me hooked

[@AdaAng-i1t]

Wat happens if the price ends in the spread zone

[@RickOrford]

Then you might lose some of your premium, or if the price is low enough, it your max loss. That's why it's best to know the chances of profit/loss - and with a spread, the best way is to use a scanner like rickorford.com/samurai

[@AdaAng-i1t]

@@RickOrford we will not get assigned the stock ? I read somewhere that we will get assigned the stock

[@RickOrford]

Assignment is always a risk, but a low one as you’ll have a long put in place!

[@mariofurmanczyk35]

If we get assigned to stock, can’t we just immediately sell it?

[@mariofurmanczyk35]

And just take the loss and move on to another trade?

[@RickOrford]

Yes, absolutely- but the point is to reduce the risk of loss.

[@jonschlottig9584]

You could. But, if it's a stock you like, which it should be if you are selling puts on it. You should hold it and start selling covered calls with a strike above what you paid.

[@Forrext]

Do you have the obligation to buy 100 before the expiration date or at the time it expires? Assuming it dips below your strike price

[@RickOrford]

For equity options in the US, you could be assigned any time before expiration- though, as I mentioned, the risk is low that you’ll be assigned before expiration. Most investors will just sell their long position at a profit.

[@Forrext]

Okay, so being assigned is determined by the buyer of the put selling their option?

[@RickOrford]

@Forrext correct. But, it rarely happens before expiration. That said, it’s best to focus on keeping those options out of the money!!

[@jamesa5720]

In my opinion, after years of using cash backed puts for income and as a way to buy stocks at slightly lower prices, the risk is not with the activity itself, it is with the underlying stock that you have sold the put upon. For that reason, I think risk is reduced by selling puts only on great companies that you want to own should the stock be put to you.

[@RickOrford]

You are absolutely correct! Thanks for the comment!

[@RB-tl7dw]

This is number five I have been binge watching your selling put options videos

[@RickOrford]

Ha! Cool. Let me know if you have any questions- also feel free to join my discord for more!!

[@davecirelli2902]

Start with a diverse group of great stocks you want to own. Sell PUTS a few months out in time, hedge with shorter term PUT vertical spreads closer to the money to cushion a large down move. Stick to a max loss you are comfortable with on any position. Hedge tail risk on entire portfolio with index products, this means buying teenies or back ratios nearer term. It's true, PUT selling is less risky but beginners may tend to over allocate and sell PUTS on stocks they wouldn't necessarily want to own and in a down market this could add up to large losses. Peace out.

[@RickOrford]

Absolutely 100%. And use an options scanner to find 🔥 low-risk high-reward credit opportunities: rickorford.com/samurai

[@zenescrow6114]

😊

[@stonksbrrrr8669]

Great content and channel Rick. New subscriber! I have a question about Iron Condors, do you have a email or a website I can submit a question to?

[@RickOrford]

Thanks! And yes, [e-mail] is fine :)

[@stonksbrrrr8669]

@@RickOrford email didn’t go through for me. Do you have a group I can join?

[@RickOrford]

Strange- give it another try! As for a group- not yet. What’s the best platform for groups these days? Slack? Discord?

[@stonksbrrrr8669]

@@RickOrford discord works well. I don’t think you can go wrong with either. I would absolutely join your group.

[@RickOrford]

Here you go! rickorford.com/discord

[@KerryFrishman]

selling put options is not a “bearish” strategy. C’mon man

[@RickOrford]

Buying put options is bearish. Selling put options is bullish.

[@csurams84]

It sure is, if you plan to buy the stock 😮

[@RickOrford]

When selling a put, one must always be ready to buy the stock!

[@kohpearly8821]

But I don't see the link to samurai in the description.

[@RickOrford]

@kohpearly8821 strange- it’s there!! Rickorford.com/samurai let me know how it goes!

[@johnsnow9232]

Selling outs is a neutral strategy