You want to generate cash flow by selling puts more than calls. Why, you ask? Two reasons:

First, stocks tend to rise over time, not fall. And selling puts is bullish; selling calls is bearish.

Second, puts offer more premium than calls due to volatility skew.

You have two ways to sell puts for cash flow.

First, sell naked puts

Second, sell bull put spreads.

Today’s video helps you better choose between naked puts and bull puts. Moreover, it investigates whether it’s better to sell multiple narrow spreads (e.g., sell two $5-wide spreads) or a single wider spread (e.g., sell one $10-wide spread).

Enjoy! I bet you’ll learn something new.

NOTES

Topic One: Naked Put vs. Bull Put?

Topic Two: Bull put. Do more narrow spreads ($3-wide) or less wide spreads ($9-wide)?

3 $3-wide bull puts vs. 1 $9-wide bull put

Here’s what I think I think about naked put vs. bull put

1. In a larger account I care more about the DOLLAR RETURN than the ROI: NAKED PUT!
   1. Naked put pays $100 but costs $1,000 & a bull put pays $50 but only costs $400.
      1. Naked put ROI = 10%, DOLLAR RETURN $100
      1. Bull put ROI = 12.5%, DOLLAR RETURN $50
      1. Why not do 2 bull puts for $100, ROI = 12.5% b/c you made $100 on $800 instead of $100 on $1,000.
      1. Doing multiple bull puts vs. a single naked put INCREASES your LEVERAGE and THUS your RISK.
2. In a smaller account I care more about the ROI than the DOLLAR RETURN
   1. Naked puts may require too much capital. Might take too much of the account.
   1. Capital-conscious.
   1. You will prefer a bull put over a naked put to control the cost.

Example $100 stock

Sell (1) $90 naked put for $1.00, cost is $1,000

Sell (2) $90/$85 bull puts for 50 cents apiece ($1.00 total), cost is $900 = Same DOLLAR RETURN, better ROI

Assume the stock falls to $85.

Naked put loss: $4

Bull Put loss: $9

GOOGL @ $108

$5-wide bull put: Sell Jun 97/92 bull put for 52 cents, Risk $448, ROI = 11.6%

$10-wide bull put: Sell Jun 97/87 bull put for 82 cents, Risk $918, ROI = 8.9%

Takeaway 1) The wider spread will have a higher DOLLAR RETURN but a lower ROI.

Why not do (2) $5-wide spreads? $1.04 credit on $8.96 cost, ROI = 11.6%

Takeaway 2) It seems like multiple narrow spreads is better b/c a) maintains the superior ROI and b) pays same if not more than a single wider spread.

BUT, you aren’t getting something for nothing. Doing multiple narrow spreads carries more leverage/risk than a single wider spread.

2 $97/$92 bull puts will lose MORE MONEY than 1 $97/$87.

Tyler’s order of preference:

1. Naked Put
2. Wider bull put
3. Narrower bull put
4. Multiple narrow bull puts (most leverage)

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.