Should you sell 1 naked put or multiple bull puts? Bull puts are cheaper and deliver a higher return on investment. But you get less credit than a naked put. So, why not sell multiple bull puts? Then, you can get similar credit to the single naked put, but still have a lower cost and a higher ROI. It seems like a slam dunk.
Not so fast.
Selling 3 bull puts means you’re on the hook to buy 300 shares. And even though you have the 3 long puts capping your loss, you still have more risk than a single naked put (which obligates you to only buy 100 shares).
In today’s video I compare the following two IWM trades:
- Sell (1) Sep $173 naked put for $1.72
- Sell (3) Sep $175/$170 bull puts for 57 cents apiece ($1.71 total).
Here’s the key revelation. Though the 3 bull puts will carry less risk than the single naked put TODAY, they can deliver losses that are double to triple the loss of the naked put at certain price levels.
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