This video walks step-by-step through the naked put strategy and how to build it in Thinkorswim (TOS).

Naked Put

• AKA Short Put, Selling to open a put
• A higher probability alternative to buying calls or buying stock
• We’re selling a contract we hope expires worthless.
• Obligating yourself to buy stock at the strike price.

Bias

• Neutral to Bullish (0, +1), ideally high IV
• IVR above 50

Stock/ETF selection

• Most traders will focus on cheaper stocks/ETF
• Sell puts on the same ticker every month as an alternate to buying shares.
• Find a lower-cost, neutral to bullish stock with good volatility (GDX, FCX, XLE, XME, CLF, CCJ, F, AMD)

Structure

Sell 1 to 2 month puts. <45 days. Delta < 0.20. The lower the better. ROI 10%

Risk/Reward

• Max Reward: Premium Received ($1.00)
• Max Risk: Put strike – premium received ($45 – $1)
• Breakeven: Put strike – premium received ($45 – $1 = $44)

Margin Requirement

15% or so of stock price.

Probability of Profit

1 – delta (0.14) = 86%

Target

• Ride to expiration and let the put expire worthless. 56, 46, 36, 26, 6, 0
• Buy to close the put when you capture 80% to 90% of max profit. Buy limit GTC $0.10 or $0.05

Stop Loss

• Exit if stock breaks support, and you’re no longer bullish.
• Exit if stock breaks below the strike price and the put moves ITM.
• If you’re willing to buy the stock, let it ride. If the put is ITM at expiration, it will be assigned and you’ll buy 100 shares of stock.

$50 stock

Sell one-month 45 put for $1.00

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