The Ultimate Guide to Selling Put Options (3-Hour Masterclass For Beginners)

A short put is a neutral to bullish strategy where you're selling a put option and then receiving a premium for it. So this is a premium selling

it. So this is a premium selling strategy and as the seller of the put option you have the obligation to buy a 100 shares of the underlying stock per option contract if you exercise. All

right so this is the P&L graph of the short put. So as you can see for the

short put. So as you can see for the short put we have a capp profit. So this

is our max profit regardless where uh the market goes to, right? It can go as high as it wants, but this is the max profit that we have. And as you can see down here, this is our strike price. So

anything after our strike price, you can start to see that our profits are starting to decrease. And if it goes past the break even price, this is where we start to lose money. So the break

even price is very simply calculated by the premium which we receive minus the strike price uh of the option which you which you are selling right. So as much

as possible when we enter into this uh short put we want the market to just go anywhere that is above our strike price.

So let's say for example if the current market is here and we sold our put option at this strike price right the market can go anywhere from here right ideally from here all the way to here

and we'd still be in a profit.

So first of all selling a put is the simplest way to generate passive income when trading options. Why? Mainly

because there's only one option you really have to manage. Right? If you're

talking about trading spreads, for example, the popular credit spreads or maybe the iron condor or maybe even spreads like the broken wing butterfly and the strangle, those have many legs,

right? You have at least two or more

right? You have at least two or more legs that you have to choose and manage.

Whereas selling a put option, very simple, just one option you have to manage. So when you sell a put, you

manage. So when you sell a put, you actually receive premium. And this is actually how you collect this what we call passive income, right? Although

this may not be the truest form of passive income because the truest form of passive income is do the work once and then the uh income will just keep coming over and over again. So basically

when it comes to you know options trading selling put is you know one of the ways as close as you can get to receive this passive income. Now when it comes to selling puts there are actually

two different strategies. So you need to be very clear on this because two different strategies they're going to use slightly different mechanics from each other and you want to be clear which is the one that you actually want

to use. So the very first strategy that

to use. So the very first strategy that involves selling puts would be selling puts with the intention of owning the underlying. That means you want to own

underlying. That means you want to own the shares the stocks or is it the index ETF whatever the underlying is you want to own the underlying right you want to get long the shares. So this strategy is

also what you call the cash secured put right that means to say you want to ensure that whatever strike price that you choose you have enough cash in your account to fulfill the obligation of

getting those shares right at least 100 shares for each put that you sell. Now

strategy number two is selling puts with no intention of owning the underlying.

So in this case the strategy is what is called the naked put. So in this case, you're only selling the put option to get the premium and you're not trying to get profit from the capital gains.

Right? For example, strategy one, not only do you receive the premium from selling the put option, the other way that you can profit is from the capital gains. That means once you get the

gains. That means once you get the shares, if the stock actually goes up and then you can sell it off at a higher price from which you got assigned, you're going to profit on that as well.

So these are two very different strategies and it's very important that you know which is the one you want to go for at the start right because the last thing that you want is to start out with

one of the strategies above and then you just convert it to the other somewhere along the line right because if you're going to do that it's going to mess up your strategy a little bit especially because the mechanics we're going to

choose going to be slightly different.

So let's start off with the very first strategy. So strategy number one and

strategy. So strategy number one and that is to sell puts to own the underlying. So for this strategy the

underlying. So for this strategy the most important key factor to success is choosing the right underlying. So for

this strategy you're going to get the premium 100% guaranteed right because all you got to do is sell the put option just leave it there right leave it there to see whether you get assigned. If you

get assigned you get the shares but if you don't get assigned then all you got to do sell another put option get the premium. So that is why the key factor

premium. So that is why the key factor to success for this strategy is choosing the right underlying because once you get assigned you have to ensure that the stock actually goes up for you to make

money overall. So how do you decide what

money overall. So how do you decide what is the right underlying? So there are two ways to choose the right underlying at least the way that I do it. So the

very first way is to choose fundamentally good stocks. Now I know that there are many you know ways to decide what is a fundamentally good stocks many criteria. Well, basically I

look for quite a few, but the main ones that I look out for, one of them is the income statement. I want to make sure

income statement. I want to make sure that I see this right that the revenue is increasing over time and that the net income is also generally increasing over time. Basically, I want to see that they

time. Basically, I want to see that they have been profitable year on year.

That's the most important thing because remember all these stocks that we are trading, they are actually companies, right? So, these companies are trying to

right? So, these companies are trying to make a profit. they're selling products and services. So if the company is

and services. So if the company is actually not that profitable or even not profitable at all, then it's going to reflect in the share price, right? It's

going to reflect in the stock movement.

So generally, if you want a stock to go up for the long term, especially once you're assigned on it, it's much safer to find one of those underlyings, one of those stocks that actually is

profitable. Now, the other thing that I

profitable. Now, the other thing that I also look out for is basically the value of the stock, right? What is the fair value? Now there are many different ways

value? Now there are many different ways to calculate the fair value. So it's

really up to you to decide you know which way you want to calculate it or you know find the sites that you want.

For me a simple way to just you know find the estimate fair value will be to go to use this site called simply wall street. Now there are many different

street. Now there are many different sites that will tell you the evaluation the valuation of the underlying of the stock that you're choosing. So you can just go and compare, right? But

basically what I'm looking out for is that the current price is actually lesser than the fair value that is being stated on the site, right? So as you can see down here, the current price states is $346.

But according to this site, the fair value of the stock is much higher, $527.

So at least in this way, I know that if I'm going to get assigned, at least I know I'm putting the odds in my favor.

Right? Now, if you're not that good at selecting stocks, the other way is to simply go with the broad-based equity index ETFs, right? So, for example, go

with the QQQs, the SPY, or maybe the lower priced one like the X series like the XLK, XLF, so on and so forth, right?

So, basically, these are what I call positive drift underlyings where basically the market just wants to go up over time. Now, what you need to

over time. Now, what you need to understand is that not all ETFs are made equal. So it's very important that you

equal. So it's very important that you choose you know basically the broad-based ones and those that is equity right you don't want to choose the one that's commodities because commodities cannot keep going

indefinitely up all the time now next the mechanics so when we talk about mechanics we're really talking about the DTE the strike price selection delta premium so on and so forth now for this

strategy the mechanics isn't as important because ultimately the goal is to have your put option assigned and then get long shares that means you won't be taking any losses on the put

option itself. The only loss come from

option itself. The only loss come from the stock selection. Right? So if you choose the wrong stock or the wrong underlying and the market goes down, then you're going to lose basically on the whole overall strategy. Right? So

the mechanics is not that important, but I'll just give you a guideline later on as to what I look out for. Now next, if you're not very familiar with the term what being assigned means, then basically it just means that your put

option is in the money and the buyer of the put option decides to exercise it.

So once they exercise it, you'll be long 100 shares of the underlying per option contract. So as you can see down here, I

contract. So as you can see down here, I just drew an example here. Let's say you have a put option down here. The market

goes down and this is what is called in the money, right? Anytime the price goes below your put option, your short put option is considered in the money. So at

this point of time, anytime before expiration, there's always, you know, the chance of getting assigned early.

And if you assigned early then you will be long a 100 shares. So now I want to give you a step-by-step guide for this strategy. So step number one choose the

strategy. So step number one choose the right underlying. So I've already

right underlying. So I've already mentioned this in the previous slide.

Now once you've already chosen the right underlying you want to ensure that it actually has options, right? Because not

all stocks actually have options attached to it. So you may find you know one fundamentally good stock but you notice that they don't trade options. So

if they don't trade options then guess what? you can't sell puts. Now, if they

what? you can't sell puts. Now, if they do have options, the next thing you want to look out for is whether they actually have this weekly options, right? So,

it's going to be uh denoted with this W at the side of the date on the option chain. So, most option chain should

chain. So, most option chain should actually show it and it's basically telling you there's weekly options, right? If there's weekly options, what

right? If there's weekly options, what it just means is that there's going to be more liquidity. That means more interest in people trading the options.

So, that's what I generally prefer. And

the next thing you want to look out for is to make sure that they actually have a decent B and R spread, right? So you

want to take a look at the option. You

want to open up the option chain and just look at the individual strikes. So

you see the strikes as you can see over here. This have roughly about 6 cents

here. This have roughly about 6 cents wide, 6 cents to 9 cents. And I think that's actually pretty fine. All right.

The one that you want to avoid is if they're very wide BNR spread. Let's say

for example 20 cents wide, 30 cents wide, or even 50 cents wide to a dollar wide. then that's where you want to stay

wide. then that's where you want to stay away from. Right? So again it's very uh

away from. Right? So again it's very uh dependent on the price of the underlying. So naturally if you go for

underlying. So naturally if you go for you know stocks that is very expensive like maybe 500 plus 700 plus then you're going to see the bin and spread of course going to be slightly wider. Now

step number two is to choose any DTE you like. Right? So for this strategy I'm

like. Right? So for this strategy I'm not that particular about the DTE. Now,

if you have been a follower on my channel for some time now, then you will notice that most of my videos generally I like to talk about the longerterm DTE, basically above 45 DTE, mainly because

we have an edge there. But there's a difference with this strategy because we're not trying to avoid assignment, right? We generally want to go for the

right? We generally want to go for the longerterm DTE if you're trying to avoid assignment. But for this strategy, we

assignment. But for this strategy, we actually want to get assigned, right?

Because you want to own the underlying.

So for this, it really doesn't matter which DTE you want to go for. You choose

the one that you're comfortable with, but you need to understand the difference between the different DTE, right? There's always a trade-off.

right? There's always a trade-off.

There's not one that is better because take a look at the one that is below, right? As you can see down here, this is

right? As you can see down here, this is 29 DTE. So basically, the longer the

29 DTE. So basically, the longer the DTE, the more premium you get. So as you can see down here, you get $2.82, 82 which is $282 in premium for every

option contract that you sell because each option contract controls a 100 shares. Now if you go for the shorter

shares. Now if you go for the shorter DTE one although you get lesser premium.

So as you can see this is the same strike 135 you only get 57 cents in terms of the credit which is $57 in premium but you actually get a higher

ROI. So as you can see down here the ROI

ROI. So as you can see down here the ROI down here is 77.05%. 05% whereas the ROI for the longer DTE one down here is the

29 DTE is 26.29%.

So it's lower. So this is one thing to understand about the options is almost as though like if you go for a bulk deal in terms of going for more DTE you're going to actually get it cheaper if

you're the buyer right that means you can buy it much cheaper but if the seller it also means that you have to sell it for lesser return as well ROI right but if you go for the one that is

the shorter DTE as you know if you buy lesser things it's going to be more expensive than if you buy you know a bulk deal like buy a hundred of something All right, compared to if you just buy two or something. So it seems

that in the options pricing world, it's pretty similar as well. So although you get lesser premium, you get higher ROI down here, although you get, you know, more premium, your ROI is lesser. So you

might have the next question is Davis, which one should I go for? Which one is better? And the only thing that I can

better? And the only thing that I can tell you is that there is no one that is really better because it really depends on the underlying market movement after you put on the trade, right? Let's say

for example, you put on the 2DTE one. If

you put on the 2DTE option, you receive $57. And let's say the market goes down

$57. And let's say the market goes down and then you get assigned at expiration.

Then you could have said to yourself, hey, I should have sold the 29 DTE one.

At least this way if I get assigned, I got more premium, right? But let's say for example, you sold the 29 DTE one and then the market goes up. But because the market goes up, you're still in the

trade. It hasn't expired. You cannot

trade. It hasn't expired. You cannot

sell another one. So you might have thought to yourself, you know, you could have said, "Hey, I should have gone for the shorterterm one because, you know, after 2 days, the market goes up, it expires worthless. I can sell it again."

expires worthless. I can sell it again."

Right? As you can see down here, it's roughly about, let's say, 60 cents.

Ballpark 60 cents, you get a premium.

You can sell it how many times? If you

sell it five times, you're going to get $3, right? And five times of this times

$3, right? And five times of this times two days, that's a total of 10 days. So

in 10 days, you can get $3 premium. But

whereas for the 29 DTE, you only get roughly about $2.90.

Right? So, as you can see, this is the trade-off. This is the difference. Just

trade-off. This is the difference. Just

choose one that you're comfortable with.

All right. Step number three. Next is to choose the strike price that is either at the money, which we call it ATM, or out of the money, which is OTM. Now, the

nearer it is to the market price, the higher the premium. So, the market price is somewhere down here. So on the option chain somehow the number goes higher as you know it goes down the ladder which

is so weird but that's the way they design it. So basically the market price

design it. So basically the market price is somewhere below down here right 135 as you can see down here is slightly below where the market price is and 131 is what you call out of the money. So

for this example we will call 135 at the money. So what you notice is that you

money. So what you notice is that you know the one that's nearer to the market price premium is higher you get about $289 but you also have a higher chance of getting assigned right how do I know

it's going to get a higher chance well just by logic itself you can deduce that if the strike price is closer to where the market price is the market has you know it's easier for the market to go down and then get your this strike price

being in the money and get assigned right compared to the one at 131 the market has to go further down now In terms of actual numbers for probability, one way you can find out is just by

using this column down here called delta because delta is also an indication of what is the probability of you know the strike price being in the money at expiration. So if it's 45 deltas, it

expiration. So if it's 45 deltas, it just means that there's a 45% chance of you being assigned at expiration. And

for this 131 strike, there's a 28% chance of this strike being assigned at expiration. Right? Basically, that's

expiration. Right? Basically, that's

what it means. So, it's always a trade-off. So, the further it is from

trade-off. So, the further it is from the market price, the lower the premium, but also the lower chance of getting assigned like I mentioned. So, again,

once you're satisfied, send the trade in. So, if you want an even more

in. So, if you want an even more accurate way to find out, you know, what's the probability of this uh underlying, you know, getting assigned expiration, you can just open up this column down here, right? It's called ITM

percentage. What it just means is that

percentage. What it just means is that the percentage of it being in the money at expiration. So, as you can see, the

at expiration. So, as you can see, the percentage is not too far off, right? If

you take a look at the 131 strike, delta is 28. The percentage of it being in the

is 28. The percentage of it being in the money at expiration, 29%. The 135

strike, same thing. 45 delta, 45% chance of being it in the money, right? So, you

can use this information and then you can kind of, you know, pick and choose your strikes, design your strategy accordingly. So, last but not least,

accordingly. So, last but not least, step number four. Once you already put on the put option, if it expires worthless, all you got to do rinse and repeat, right? Just sell the put option

repeat, right? Just sell the put option again. Now, if you get assigned, then

again. Now, if you get assigned, then this is actually what you want. Then at

this point of time, you already long the shares. You can consider selling a

shares. You can consider selling a covered call. Right? If you sell a

covered call. Right? If you sell a covered call, then this whole strategy would have now transposed into what is called the real strategy. So, I'm not going to go in depth into the real strategy because I already have several

videos on it in my channel. So, if

you're interested, just go to my channel, do a search for the view strategy, and you'll find many that comes up.

This time, we just want to sell puts just to collect premium. That means to say, as much as possible, we do not want to be assigned, right? Which also means that you probably have a smaller

account, right? Generally, strategy one,

account, right? Generally, strategy one, you do need a bigger uh account depending also on the price of the underlying that you're planning to trade. But generally, if you're going to

trade. But generally, if you're going to long shares, you need much more capital than you know this strategy because this strategy, you're not actually going to long the shares. So, you do not need the capital to fulfill the obligation of

buying the shares. For this strategy, mechanics are more important than strategy number one because since you're not planning to own the underlying, it's inevitable that you will have to take a

loss on some of your trades. Right? So,

this is something I talk about over and over again is that when you're trading any option strategy or at least strategies where you know you're not planning to actually get a sign on the underlying, then sooner or later you're

going to have some losses. So, you need to know when to take the losses, right?

If you want to always have wins 100% uh winners, then good luck to you because you're going to be in for, you know, a very very painful time. Next, for this strategy number two, the sole profit

driver is the premium from selling the put option unlike strategy one like I mentioned earlier where you have two profit drivers, right? Selling premium

as well as capital gains. So for here you know the mechanics is much more important because we're only relying on the premium which we receive or rather how much we can actually capture of the

premium that we receive to actually create you know this passive income for us. So timing your trade is also much

us. So timing your trade is also much more important than strategy number one.

So the key to success for this strategy lies in having the right mechanics which I'm going to share with you of course and to have an edge and be profitable net profitable in the long term. So

again the keyword down here I like to say is the long-term at least more than 100 trades or more right because it's very possible that you know if you have only like 20 30 trades you could still

see a draw down right you could still see your overall net loss but if you continue to put the trade as long as you stick to the mechanics I'll be sharing with you then generally you're going to have an edge you're going to be net

profitable over the long term so what are these mechanics right so I'm going to give you a step-by-step guide as well for this strategy So step number one is

to choose a positive drift underlying.

So generally what I mean by positive drift underlying, I just mean the broad-based index ETF. So generally for this strategy, I prefer index ETFs than

to individual stocks because they do not actually move as much compared to individual stocks, right? Individual

stocks, many things can affect them.

They have earnings or they could have, you know, very bad reviews or maybe bad launches. so many things that can affect

launches. so many things that can affect them, right? And if they are affected,

them, right? And if they are affected, especially to the downside, if it's negative news, the market can really tank, right? It can really gap down and

tank, right? It can really gap down and that's not what we want when we're trading the short put. So that is why I prefer positive drift vehicles like the index ETFs where we know that over the

long term it wants to go higher. So as

you can see, this is the S&P 500 at the top. Below is the uh tech index ETF,

top. Below is the uh tech index ETF, right? In this case, it's XLK. So again,

right? In this case, it's XLK. So again,

up to you to choose which of this positive underlying that you want to use. Now, step number two, this is where

use. Now, step number two, this is where timing comes in. Now, you definitely do not have to use this, but this is just one of the ways, especially if you're getting started, a good way for you to,

you know, use as an indication of when you can consider selling your puts, right? Because if you're just going to

right? Because if you're just going to randomly sell your puts on the chart, then you know what you may find is that although it's going to be positive drift, the market may go up in the long term, but during the duration that you

choose for your option, the market could go down, right? And then even though the market goes up, eventually you're still going to lose on the trade because there's a limited timeline for which

when you put on the option. So, one way I like to help, you know, new traders get into the game in terms of timing is just use this indicator called the stochastic oscillator, right? Basically,

what it does is that it identifies overbought and oversold situations in the market. So, as you can see, anything

the market. So, as you can see, anything that goes below this uh purple line at the bottom is what's considered oversold. So, at this point, you know,

oversold. So, at this point, you know, you can pull out your technical analysis as well. You can take a look at support

as well. You can take a look at support and any other indicators, right? if you

want. Basically, once you see it's oversold, find some support and then from there you can consider selling your put option. Now, if you want to use RSI,

put option. Now, if you want to use RSI, that's fine as well. Now, if you're curious about what is my settings for this stoastic oscillator, I've already got a video that I've dedicated to the

settings, how I set it up, just go to my channel again and just type the word stoastic oscillator. You'll be able to

stoastic oscillator. You'll be able to find that video. Now, step number three.

So you notice in the strategy number one, I didn't really bother too much about which DTE we want, right? I'm not

that particular. But for step number three, for this strategy, we must be particular because again, we do not want to be assigned. So for this, we want to choose anything that's around 45 DTE. I

like to generally choose above 45 DTE as well. And the main reason, as you can

well. And the main reason, as you can see down here, is because the study has already shown that there is no edge if you go lesser than 45 DTE. Now, if

you're not familiar, I mentioned this in many of my videos as well. And I'm going to be repetitive, right? Because that's

the way you can learn any single idea, right? Repeat it over and over again.

right? Repeat it over and over again.

So, the idea down here is that to have an edge, we want the RM to be lesser than the EM. So, RM stands for the realized move. That means the actual

realized move. That means the actual move that the market makes. And EM stand for the expected move, which is the theoretical move based on the option pricing. So generally as you can see

pricing. So generally as you can see down here if RM lesser than EM is good right that means you have an edge if RM equal or more than EM no good right means we don't have an edge in the long

term so as you can see down here this study is done on SPY which is also another reason why I tell you guys to go for you know those index ETFs because a lot of studies have already been done on

that right so why not just go for the ones that have already been proven to show that there's an edge so as you can see down here this last row All right, it shows the expected move whether is it

bigger than the realized move. So you

notice from anywhere from 7 to 30 days, the one that I marked in the red box.

The answer is no, right? Expected move

is not bigger than the realized move. So

this is not good, right? Because we want the expected move to be bigger than RM.

But only when 45 days onwards, you notice that it says yes, right? Yes. And

down here as well, 45 to 90 days. So

that is why when we go for 45 days and above then we're going to have an edge.

So what does this edge actually translate to? All you got to know that

translate to? All you got to know that is it translates to a slightly higher win rate than the theoretical win rate and net profitability in the long term.

Now next step number four is to choose the strike price. So how do you know which strike price to choose? So

generally we want to choose a strike price that has a balance of you know nice premium or rather adequate premium and at the same time we want to avoid being assigned as much as possible. That

means to say we have the probability on our side that we're going to win more often than we actually lose. So as you can see in this case we want to go for the delta that is around 20 to 30

deltas. Right? So again the studies have

deltas. Right? So again the studies have already been done on this uh 30 delta put option. As you can see down here the

put option. As you can see down here the win ratio right? If you hold to expiration it's 85% and if you manage it at 21 DTE basically you exit at 21 DTE

the win rate going to be slightly lower right but what you want to also see is regarding the ROC right basically is the return generally the return is higher

when you exit at 21 DTE so this brings up the next step which is to manage the trade at 21 DTE at the latest. So what

happens if you hold the trade past 21 DTE basically the risk increases right so there's such thing called the gamma so if you're new to options I don't want to confuse you but what you need to know

is that gamma is not good for us as a short option seller right so if you have a short put and if you hold past 21 DTE gamma is going to work against us we don't want that so the latest is that

once the trade reaches 21 DTE you want to either roll it or close it right so this study down here again by the tasty trade team. As you can see, this study

trade team. As you can see, this study have been spanning for multiple years, right? Since 2006 uh around there. So,

right? Since 2006 uh around there. So,

you can see that all they did is that they actually just close the trade and put it on the again a new 21DTE. Each

time, you know, the trade is closed for the 21 DTE one for expiration. Once it's

expired, they put on a new one again.

And what you notice is that the 21DTE actually has much better performance.

So, what they did for this study is that they just kept rolling it. Now you don't have to keep rolling it. You can of course just time it as what I've mentioned in step number two, right? So

let's say for example you reach 21 DTE, you just close it, right? Whether is it a win or loss, you close it, wait until you know if it's oversold again, conditions are met or you know whatever technical analysis that you want to use

as well. You see that it's an entry, you

as well. You see that it's an entry, you enter again using the same mechanics laid out in step three and step four. So

you don't have to keep rolling it if you don't want to. Now finally, step number six. This is the most important one and

six. This is the most important one and that is to manage your downside, right?

To manage the risk on this trade because the short put what you need to understand is that it's an undefined risk strategy which means to say if the market goes all the way to zero you can

lose a lot of money right that means you could actually lose much more than what you actually have in your account. So

the most important thing is that because this is an undefined risk trade it's important to set where your max loss is.

So in this case, this is what I like to call your worst case scenario. So

generally I like to set it at the initial buying power requirement BPR or BPE depending you know what your platform says. But BP is basically you

platform says. But BP is basically you know the amount that the broker holds for you to put on this trade. So let's

say for example you put on a short put for this uh underlying down here and uh this underlying right I just use an example is Google. It gives you a buying power effect of -2,97.

That means to say this is your initial BPR. So if the loss on this trade

BPR. So if the loss on this trade actually hits around $2,97, you want to exit the trade, right? Just

close the trade, take the loss. So this

way at least you do not have one trade that wipe out your whole account. So one

of the biggest mistakes that many new traders do is that they do not want to accept the loss, right? So they will hold on to the trade. So this is what I mentioned you know at the beginning of this video where some people you know

start off with strategy two but when the market goes all the way down past their put strike they suddenly now want to switch to strategy one because they do not want to take that loss at around 21

DTE right so it's very important that around 21 DTE you close it but if it exceeds right your initial BPR before

this 21 DTE you need to close it as well now some of you might be wondering you know What if I just set a stop loss that is smaller than the initial BPR? So,

let's say, for example, this BPR says $2,97.

Instead of uh having your stop loss set there, maybe you want a stop loss at maybe $1,000 or something like that, right? Something much lesser. Well, if

right? Something much lesser. Well, if

you want to do that, you can just do that at your own discretion. Why?

Because studies again have been done by the Tasty Trade team. They actually

examined the use of a stop-loss when you're trading this uh short options.

So, as you can see down here, this is the study of the 16 delta put. And what

they found is that while overall you're still going to be profitable, your performance when you're managing your losses, that means you cut off the loss at a certain multiple of your premium, uh you're still going to have a worse

performance than if you hold to expiration. So if you see the previous

expiration. So if you see the previous slide, you can see that based on the annualized ROC exiting the trade at 21 DTE, you're actually going to get a better performance than holding to expiration, right? You can see it down

expiration, right? You can see it down here as well. So if you were to put a stop loss, right, then you can see that the performance actually going to be lesser than expiration. So that means it's going to be far worse, right? But

of course, I know that many people will have, you know, will come and tell me and say, "Hey, Davis, but the way that I implement my stop loss is slightly different, right? Maybe I use technical

different, right? Maybe I use technical analysis. Maybe I use a different

analysis. Maybe I use a different multiple of my loss. Maybe I use a fixed dollar. All I can say is, hey, just go

dollar. All I can say is, hey, just go ahead and do that if you think that's going to give you a better performance.

At the end, it's your money. I'm just

going to give you the guidelines. So, if

at the end of the day, if you notice that just by managing, you know, the losers that is smaller than the initial BPR, you get better performance, then by all means, go and do that. Again, most

important thing, make sure it's objective, right? Objective means to say

objective, right? Objective means to say you do it across 100 trades, compare it to if you manage it at 21 DTE and then see the results for yourself.

Let's talk about whether selling put options is safe or risky because on one hand you have people saying that you know they make thousands of dollars each month selling put options. Especially

there are a lot of YouTubers they will say that they make a lot of money selling put options and there are people saying that if you want to get consistent income you should be selling put options and you also have people

saying that you can get rich by selling put options. But on the other hand you

put options. But on the other hand you know you have people that got into a lot of trouble selling put options like they said that they got into a margin call and they blew up their account selling

put options or they lost all their money because they sold put options. And some

would say that selling put options is extremely risky and that you should never sell put options. So which is which? Is it safe or is it risky? Well,

which? Is it safe or is it risky? Well,

let's really dive into this so you get a good understanding about what selling put is all about. So in order to understand the risk of selling puts, we have to compare it to buying shares.

Because after all, if you don't sell puts, what you going to do to invest in market? The other alternative will be to

market? The other alternative will be to buy shares. Okay, so this is Amazon. So

buy shares. Okay, so this is Amazon. So

let's say that this is the price. $100

is right now where you plan to buy the stock. Okay, you might be thinking that

stock. Okay, you might be thinking that this is a good price to enter. So you

want to enter at this $100. So what

we're going to do is that we are going to buy 100 shares at $100. All right. At

the same time, we're going to simultaneously also sell one put option with a strike price of $100. So what

we're going to do is we're going to compare these two. So when you sell the put, you receive a credit of $2.50. That

means you receive $250 premium received.

So now let's assume that the stock went down to $80, right? Because after all, the risk is all on the downside. So if

it goes down to $80, the question is what is the risk? How much does the 100 shares lose and how much does the shortput lose? Okay, so let's take a

shortput lose? Okay, so let's take a look at the risk profile for this. So on

this side you can see this is the risk profile of 100 shares. All right, very straightforward. You buy 100 shares at

straightforward. You buy 100 shares at $100.

What is the amount you will stand to lose if it goes down to $80. So as you can see down here, very straightforward.

If it goes down to $80, your loss will be $2,000. That is because it dropped uh

be $2,000. That is because it dropped uh $20 from $100. So $20 per share times 100 shares, that is $2,000.

So if the shares lose $2,000, how much do you lose when you're selling puts? So

you can see this is the short put graph.

All right. So the short put uh this is at expiration. This is how much you

at expiration. This is how much you stand to make or lose. And this is right now each day as time passes this uh curve down here will slowly go up to

match this curve. Okay. So at this point of time, let's say if the market was to immediately drop to $80, this is what the purple line you'll be looking at. So

when it drops to $80, what you'll be losing, if you can see down here, is $1,827, right? And ex expiration, you will lose

right? And ex expiration, you will lose $1,750.

So this is the box that you take a look at. This is the risk profile. So if you

at. This is the risk profile. So if you notice, you actually are losing lesser than buying shares. You see, if you buy a 100 shares, you'll be losing $2,000 if

it goes to $80. But when you sell the short put, you're actually losing lesser. And the reason is because you

lesser. And the reason is because you already collected the $250 in credit. So

this amount that you receive, this premium actually helps offset the risk that you would have on the downside. So

let's take a look at this. What if the stock goes to $0? How much do you lose?

What is the risk? So, if you were to buy 100 shares, immediately you could see that the the amount that you lose is $10,000. Let me just highlight it here

$10,000. Let me just highlight it here for you so you can see. So, it's $10,000 down here. Well, that's because you

down here. Well, that's because you bought 100 shares at $100. If it goes down to $0, you lose 100 per share. $100

per share. That's $10,000. But for the short put, look at this. You only lose 9,750. And I don't mean only by that's

9,750. And I don't mean only by that's having little money. What I'm trying to say is that you're losing lesser than buying shares. So if you notice, the

buying shares. So if you notice, the risk is actually lower than buying shares. So selling puts have a very

shares. So selling puts have a very similar risk profile to buying shares.

In fact, you lose less selling puts, which means selling puts is actually less riskier than buying shares.

So, if selling puts is actually less riskier than buying shares, then why is it that people are saying that, you know, selling puts are risky and that people are blowing up their accounts and they're getting margin calls and they're

saying that you should never ever get into selling puts ever again.

And the answer comes down to this picture right here. So, as I was saying, the reason so many people blow up their accounts and get margin calls is because

of this number right here. So, this

number right here is the main culprit.

All right. So, what is this number? You

notice it says this is the buying power effect. So, essentially this number down

effect. So, essentially this number down here is the margin you need to put up for just selling this short put, right?

So, for example, if you were to buy a 100 shares at this price, $100, the amount that you need to put up to buy this shares will be $10,000 as we

already know, right? But if you were to sell the short put, you actually do not need to put up the $10,000. All you need to do is just put up $1,000 and you

could sell this put option and receive $250 in premium. So here is where the problem

in premium. So here is where the problem really lies. Okay. So imagine this. A

really lies. Okay. So imagine this. A

lot of people when they get into or when they get started selling put options, they'll generally, you know, start off with a smaller account. So let's say they have a $5,000 account. Okay? So

they have a $5,000 account. And then

they take a look at this number down here, which says that, hey, you only need to put up $1,000. All right? Let's

let's round this down to $1,000. So,

they say you only need to put up 10 uh $1,000 and you can get $250 in credit. So, they go and they start to

in credit. So, they go and they start to think themselves say, "Hey, if I've got $5,000, that means I can actually sell five of this put options. If I sell five

of these put options, how much premium will I be able to receive?" Right? So,

they have $250.

they times five and the amount of uh credit or premium which they'll receive is $1,250.

So they'll think to themselves, oh wow, that is a lot of money because your account side is is only $5,000

and you're able to get $1,250 in terms of premium just on a capital of $5,000. So that's what they did. So that

$5,000. So that's what they did. So that

is the problem because they do not realize the risk that they actually are having. So this is number that you

having. So this is number that you actually have to pay attention to. The

big problem is this number right here.

So you see this number says this is the max loss. So a lot of people do not even

max loss. So a lot of people do not even bother to look at this number. What is

trying to tell you that if the stock actually goes to zero, this is what you can lose. And if this person was to sell

can lose. And if this person was to sell five contracts, so you take $9,750 and you times five contracts. Guess what

is the risk? The risk is let's just take out our trusty calculator here.

So our total risk is 9,750 times five contract and the total risk is $48,750.

$48,750 and they only have $5,000 in their account. Their account size is only

account. Their account size is only $5,000. So can you see how their account

$5,000. So can you see how their account can easily get wiped out because they've gotten too big of a position for their account size? So, how much of a move

account size? So, how much of a move does Amazon need to go down in order for this $5,000 to be wiped out? What is how how much do you think it needs to go

down? Well, for this, let's take a look

down? Well, for this, let's take a look at the risk graph.

So, if you were to take a look at the risk graph, you can see this is you have five shortput contracts on the the Amazon with 100 strike price. So, you

can see right at the $90.84, 84 cents you would have lost $5,03.

So this is why a lot of people lose all their account or they get into margin call. All right, the stock all it has to

call. All right, the stock all it has to do is drop from $100 all the way to $90.84 and that will wipe out the whole account

of $5,000. So this is the problem that a

of $5,000. So this is the problem that a lot of people have when they start selling puts because they overlever themselves. All they see is the amount

themselves. All they see is the amount of money that they make. They do not see the risk that is uh that they have when they sell all these put options. And

this is something that you do not want to get yourself into. So this is actually what happened to a friend of mine. All right. Not too long ago, a

mine. All right. Not too long ago, a friend of mine got into trouble by selling way too many puts on Baba, right? This is the stock of Baba. At the

right? This is the stock of Baba. At the

point of time when he came to me, I think it was roughly about $170, $180.

So, what he did is he said to me that he sold six put options at $160 strike price for $5 per option. Right? So, for

six contracts, he would receive $3,000.

And he came to me and said, "Davis, this is such easy money. you should be selling on Baba as well. So I told him that yes, it's easy money if it expires

worthless, right? But if you get

worthless, right? But if you get exercise, if the market was to come down, then you're going to get a lot of trouble, right? The problem with what he

trouble, right? The problem with what he just did is that his account size is only $25,000.

Right? If you were to get exercise on the full six put options at $160, the amount of capital you need to put up is actually this. So again, let's put up our calculator.

So what you will need to get uh to fulfill the obligations of this put contract if you get exercise will be six

times 160 and times 100 shares. So you

need $96,000 and he only has $25,000 in his account.

And the other problem is that he have actually other positions in this account. So this is only a small or or

account. So this is only a small or or rather a part of his uh uh portfolio.

So as you can see if six contracts were exercised you have total funds that you need will be $96,000. So he said Davis don't worry the stock right now has

already been selling off so much that it has found the bottom. It says that how much further can it go right it has already went down a lot. So I told him that you know you never know. So most

important thing is that you got to make sure that you are well funded that in case you do get exercise you need to put up the amount of money. He said there's no way that will happen. Well, not too

long after, he actually came back to me and told me that his account is in trouble because, as you can see, Baba went all the way down to as low as

around $70, $70 something dollars, and he shot all the way 160 contracts.

Sorry, six contracts at $160. So, this

is a huge move down, almost $90 in a move down. So needless to say he was in

move down. So needless to say he was in big trouble and he was about to be uh facing a margin call from the broker. So

he came to me asking me for help asked me what should he do. So I told him you know first of all what happened to the easy money right cuz he said that it was so easy and that the baba and baba won't

come down but in the end it did come down. So I told him right now you need

down. So I told him right now you need to do a few things right number one you could either top up more money if you add more money to your bank account or rather to your trading account then you could fulfill all the

uh obligations uh in case you get exercise but he said that he didn't have that much cash. So I told him that the next other thing that you can do is to basically reduce your exposure. That

means you have to cut some of these positions right here. You have uh he had six short puts. I told him that he need to try and cut a lot of it down as well as other positions he has in his account. So he decided to close some of

account. So he decided to close some of these puts and I told him for the remainder of the puts you will have to roll it as far out as possible maybe to the

furthest expiration date and then try to push this 160 strike down maybe to 155 or even to 150 or lower. And by doing that you actually reduce the delta so

the impact on your account is not that bad.

So at this point of time he had no choice but he has to take loss on some of his positions when in the long run there could be a possibility that the market could bounce up right. So he

missed out on all this chance because he overleveraged he decided to sell too many contracts for his account size.

And this is a very important lesson for him because if he did not experience this now, if he were to get a little bit overconfident, if he made this money on this short uh this six contracts, next

round he might start to sell more. He

might sell 10, he might sell maybe even 20. And that will be a big uh problem

20. And that will be a big uh problem next time if the market tanks again.

So there's a very important concept that I like you to understand and that is uh the term risky versus calculated risk.

So here's the thing when you come to trading or even investing you cannot avoid risk right when you say whether is it risky or not there is always risk because when you're putting in money

into the market there's always a chance that you can lose it. So rather instead of asking whether is it risky, you need to understand there is something else that's called calculated risk. So when

people say selling put option is risky that's because they don't think of the possibility that the underlying stock can go down. They only think of how much they can make. And that's exactly what

happened to my friend when I asked him say that what happens if the market goes down. He says that he doesn't believe

down. He says that he doesn't believe that Baba will ever go down because he has been oversold. So all they see is how much uh potential money they can make but they totally ignore the risk on

the downside and that is why they didn't plan for the worst case scenario. If my

friend had planned for the worst case scenario he would know that there is a possibility that if his options get exercised then he would not be able to fulfill the obligations. So he would

need to reduce his size. So they don't really also understand the strategy and they definitely didn't have a plan.

Instead, we want to take a much more strategic approach, which is to have calculated risk. So, calculated risk is

calculated risk. So, calculated risk is when you understand that there is a possibility that the stock can go down, right? Every time when you enter a trade

right? Every time when you enter a trade or investment, you ask yourself uh that there is a chance that the stock can go down and if it does, are you prepared for it? Are you ready for it? And then

for it? Are you ready for it? And then

you have to plan for the worst case scenario as well. So, are you okay with it? So, this also comes in terms of

it? So, this also comes in terms of diversification, right? If you put everything into one

right? If you put everything into one stock, let's say, and you are say you're very confident in it, that's fine as well if you're very confident in the stock. But if it goes to zero, you need

stock. But if it goes to zero, you need to be able to know that this is the risk that you want to accept. So the most important thing is that you understand the strategy thoroughly and that you

accept the risk associated with it.

Right? And I learned this very early on on the importance of calculated risk when I was working for a proprietary trading firm over a decade ago. So uh if you're not very familiar on the term of

what proprietary trading firm is basically where the company uh they have funds and then they hire all these traders and then they give funds to these traders to trade the markets and whenever they have any profits they just

give them a profit share. So I want to share with you a very quick story on what happened uh when I was at a prop trading firm so you get a better understanding on the term of risk versus

calculated risk. So the one thing about

calculated risk. So the one thing about proprietary trading firm is that they will give money to they they will fund the accounts of the traders and if they make money they'll give a cut of the

share. They'll give a profit sharing but

share. They'll give a profit sharing but if the trader was to lose money then the trading firm actually bears the risk. So

the number one thing that the uh prop trading firm has to do is really manage risk because if they don't one single trader can easily just get them out of

business and they cannot make this happen at all. So managing risk is very important. So I remember the day when I

important. So I remember the day when I entered the uh proprietary trading firm it was my first week there was this senior trader there. So the senior trader has been there for a number of

years. And if you have been there for a

years. And if you have been there for a number of years, you know, it means you're very likely that you're profitable. Otherwise, you wouldn't be

profitable. Otherwise, you wouldn't be able to stay in the prop firm for years because you some prop firms do not actually pay a a salary. And if they do, it's very little. So that is why the

only way that you can really stay on is if you keep making money in the markets.

So this senior trader there has actually been there for a number of years. And

that very particular day when I was there, what happened was that all of a sudden the boss from his room would stand up and then come out of the room

and stand in front of this senior trader and ask him what on earth is he doing?

So the boss was very angry and asked him what are you doing? Are you going to get out of the position? What are you planning to do? So apparently uh this senior trader has got himself into a

very big position and he has already hit the uh maximum loss that he he can hit per day. So all of us have a risk that a

per day. So all of us have a risk that a maximum risk or maximum loss that if we hit it for the day we have to close out our positions and stop trading for the day. So this senior trader has already

day. So this senior trader has already hit that amount and has actually passed it. So the boss was asking him why isn't

it. So the boss was asking him why isn't he trying to get out of his positions?

Instead, the trader was like a deer in the headlights. He was just staring at

the headlights. He was just staring at his screen and then he just told the boss say that all right I'm I'm going to just uh uh close out this positions once it dropped a little bit more. So the

boss told him say okay that is your plan. All right, if it drops a little

plan. All right, if it drops a little bit more you are out. So the boss went back to his room and then sure enough a few minutes later the boss stood up again and came out and this time he was

extremely mad. He told the trader, this

extremely mad. He told the trader, this senior trader to get out of his seat and then the boss sat down in his seat and manually closed all of his positions.

And you know this is a a a very bad thing when the boss have to close your positions it means that you have screwed up. So the boss was uh just hurling a

up. So the boss was uh just hurling a lot of vulgarities at him and the thing what happened the day is that the boss told him to pack up and leave and to

never come back. So think about it this way, right? Think about this. This guy

way, right? Think about this. This guy

is a person that has been trading in the firm for many years and most likely has probably made quite a bit of money for the firm and because of this one mistake

he made that he didn't manage his risk properly and he managed to get himself fired after working for so many years.

So this goes to show that the proprietary trading firm is very hard on risk and and the the moral of this story is that if you don't have a plan and you

don't know exactly how much you can lose in the worst case scenario, then you shouldn't be in the trade in the first place. So this I believe if you are

place. So this I believe if you are investing in the market, you're trading in the market, you're using your hard-earned money, right? So if you're using hardearned money, why do you want to get into a trade which you don't understand? you don't even know what is

understand? you don't even know what is the maximum risk that you can have. So

it is very important to plan out your calculated risk. Okay. So now that we've

calculated risk. Okay. So now that we've established that you need to know what's your calculated risk, the question is how do you make selling put options safer.

So the very first tactic uh is to find support levels. So support levels you

support levels. So support levels you can find them uh in an uptrend, in a downtrend and in a sideways market. So

first of all in an uptrend. So an

uptrend basically is when the market is moving uh like this. So basically what it's doing is forming what you call higher highs and higher lows as well. So

this is in an uptrend market. So

basically what we are looking for is for support levels basically of the previous lows. So this previous lows can act as a

lows. So this previous lows can act as a support levels if the market was to come down and then bounce off it. Right? So

this is what we are looking for. or

we're looking for a break of the previous low and then we can see if the market does go up and close above the previous low then this could be a good place for us to get into the short put.

So this is for the uptrend. Now for

downtrend the market moves in the opposite fashion right so instead of moving uh making higher highs and higher lows it's actually making lower highs

all right and lower lows. So what we're doing down here is we are also looking for the break of the previous low. All

right. So, we want to see a break of the previous low and then we want to see that the market tries to go up and closes above this. And ideally, we want to have some bullish price action here,

right? It can be a bullish uh

right? It can be a bullish uh candlestick bar or maybe some divergence which we see uh if we have some uh indicators going on below which I'll share with you later on. So, this is what we're looking at, right? We're

looking for this break of a previous low and for the price to close above before we can start to enter into a short put position. And the last is the sideways

position. And the last is the sideways market. Right? So the sideways market is

market. Right? So the sideways market is when the market has no defined uh real movement, right? It doesn't make higher

movement, right? It doesn't make higher highs. It make this higher lows, higher

highs. It make this higher lows, higher highs, lower lows, lower highs. All

right? Like this. So you can see although it's making higher higher lows down here, it made lower low again. All

right? Higher highs, then lower highs.

So it's in this uh back and forth action. So what we want to look out for

action. So what we want to look out for ideally is looking for all this previous lows to see where it breaks, right? We

want to look for the lowest point and then basically draw a line over here.

All right, around around all these support levels and then see whether the price can close above all these levels before we start taking uh into a short put position. So let's take a look at

put position. So let's take a look at some chart examples.

All right, so this is an uptrend. As you

can see, the market is trying to form what you call the higher highs, higher lows. All right? So, can you identify

lows. All right? So, can you identify where could be a good support level, right? So, these are previous lows. All

right? So, these are previous lows. All

right? So, you can see the the price action has not broken below this previous low, but it came pretty close down here, right? So, it came down. All

right? It bounced off this uh previous low and then it went back up, right? So

this place is a good place for us to enter into a short put position especially also because you see it bounced off this uh moving average. So

moving averages can also serve as what you call dynamic support right they are not static like price levels they are more dynamic because they move along with the price and you'll notice that

many times when the price actually bounce uh touches the moving average it can bounce off. So this can uh use as a dynamic support as well. So especially

if you use this in conjunction with the support levels of the previous lows, you can see that this can be a very good place for us to identify strong places where the market will bounce back up.

Right? So this is in an uptrend. Now

what about for a downtrend? Can you

identify the support levels? All right.

So as you can see there are there are few support levels here. I can draw one down here. All right. Let me just draw

down here. All right. Let me just draw this all the way across and then another support level down here. So as you can see uh when there is a a a break of the previous low from down here you can see

that the price would momentarily just go up right it goes up come back down bounce off goes back up again. So again

we can sell our short put below this uh support level because when the price goes up your shop put will also uh lose its value which means to say you're in profit right because if you sell for

let's say $2 and as the price goes up it may depreciate to maybe around $1 and that's where you can get your profits right so you will see down here support

very easily became resistance levels right resistance levels so since we are only looking for uh a support where we are because we're going for a short put which is a bullish strategy. We're

looking for this right. So as you can see again support level it tries to break below but then it bounced up again. Down here is another place where

again. Down here is another place where it very closely about to hit the support level and then it bounced back up again.

So again these are good places for us to get into the short put. Right? What

about sideways? Right? You can see this sideways has no real direction. Right?

is forming this uh higher high but then after that it start to form lower high and you can see that down here it forms a higher low but then it goes down to

form this lower low. So you can see this is in a a sideways fashion, right? Just

moving between this these two prices up here, right? So during this time we can

here, right? So during this time we can easily find all this support levels. Let

me just draw this uh remove this first so I can draw it more accurately.

[sighs and gasps] So you can see that it actually bounced off the support level quite a number of times. All right. So

it bounced off uh three times after uh it has broken this previous low. So you

can see this sideways uh is a pretty good time for us to get into a shopper position as well and selling our strikes below this support level.

Right, tactic number two. So tactic

number two is to find oversold conditions using this stoastic uh indicator. Right now there are a few

indicator. Right now there are a few other indicators that can identify overbought or oversold conditions but the one that I like to use is stochastics. And you can see that each

stochastics. And you can see that each time when the market right this this uh blue line down here goes below this purple line is what you call a oversold

condition. So oversold conditions

condition. So oversold conditions basically are places where there's a higher potential for the market to bounce back up than it is to go down.

Right? So you can see two times when the market right has an oversold reading the market goes up. At the same time, you can use this in conjunction with dynamic support levels or just the support

levels. Right? You can see this became

levels. Right? You can see this became resistance. This is resistance. Now, it

resistance. This is resistance. Now, it

became support. All right? So, this is a moving average dynamic support. So,

whenever you see that there's oversold in conjunctions with some of these support levels, it can be a very good place for us to get into a short put position as well. So, here's another

one. Right? So, you can see each time it

one. Right? So, you can see each time it is uh oversold, right? You can see there are three times.

So again oversold right. It bounced back up momentarily again down here as well.

It bounced back up down here as well.

Bounce back up. Okay. Now one thing to understand is that this is not 100% going to work all the time. Right? There

are times where it's going to show an oversold reading and then the market just continues to go down. So what we are dealing with here is probability.

Because if you want to get into a short put position, we ideally want the market to quickly go up in our [snorts] favor, right? So would you rather sell it when

right? So would you rather sell it when it's oversold, the short put or would you sell it when it's overbought? Right?

So it makes more sense for us to time it when the market is oversold.

All right, here's another example.

Right? As you can see, this is the chart from before where we have all these support levels, right? Where it tries to break the previous support levels and then the market will bounce back up. So

you can see that each time when it bounced back up or rather when it touched the support level it coincide with the market the stochastics of saying that it's oversold right so you

can see here this is pretty accurate because the four times right it showed an oversold reading right the market bounced back up except maybe this one time all right it showed this and then

the market just came back down after that right but for the most part it is pretty accurate especially when the market is going sideways All right. So tactic number three is one

All right. So tactic number three is one standard deviation. So uh I don't want

standard deviation. So uh I don't want to get into the very technical terms. So in layman terms basically one standard deviation just depicts the price movement range that the stock will be in

uh 68.2% of the time by the options expiration date based on the implied volatility. Okay, that's quite a

volatility. Okay, that's quite a mouthful, but basically what it's trying to say is that most of the time, if you can take a look at this uh highlighted box down here, most of the time the

market right or the underlying stock will be in between this box at the options expiration date, right?

So, if you're wondering how far or how wide, you know, the the stock has a range, right? How high it can go or how

range, right? How high it can go or how low it can can go, it's dependent on the implied volatility, right? Sometimes

there's earnings or sometimes there's some news that comes out. So this

implied volatility will take into consideration that will define the price uh range of the stock. Right? So basically what he's

the stock. Right? So basically what he's trying to say is that if you were to stick within this one standard deviation, right? Uh of your choosing

deviation, right? Uh of your choosing the strike price at around one standard deviation, most of the time the stock will go in between will stay within uh this box. So as you can see for our

this box. So as you can see for our short put we actually have a very high uh win percentage if you were to have a strike price at the one standard

deviation right so we want to go for a strike price that is uh around the 16 deltas so around 16 deltas or anywhere 15 to 20 deltas is fine as well that is

where we have a one standard deviation uh put option right so you can see that although it's 68.2% 2% most of the time you were staying within for us as a put

option we have a 84.19% so that's almost 85% win rate right because anything above this point is also a profit for us so that means

anywhere above from this point all the way to here is a profit so that is why when you want to choose a a put the strike price you want to choose around

this one standard deviation to give you an increased chance of Trading rolling basically just means to close out your current option position and

then simultaneously open another option position in one order ticket. So in our case because we have a short put we have

sold a put option to close it we have to buy it back. So we buy back our current short put and then we sell another put option. So we do all this in just one

option. So we do all this in just one ticket. So as you can see this is just

ticket. So as you can see this is just the process of rolling. It's very simple right? So in this example you can see

right? So in this example you can see that we have bought back the option on the 12th of August and then we sold another one two weeks out on 26th

August. And for this we keep the same

August. And for this we keep the same strike and then we receive a credit for it. So it's very simple. We basically

it. So it's very simple. We basically

just close out the current option position, open another one and the key is to get a credit for it.

So why do we want to roll? So there are five reasons to roll a short put, right?

So the first reason is to improve your probability of profit. So let's say for example, you have a short put at $100.

All right? You sold a short put at $100.

Then you decided to roll after the market decided to drop, right? If the

market drops and then you want to roll.

So let's say you could roll it to 95.

So what does this mean? So previously if you had the short put the only way you'd be able to sort of capture the full profit on this short put is if the

market goes above 100 and it and your put option expires worthless, right? But

now that you have rolled it down, the market can come down to even $96. And

then if it stays there at expiration, you still make the full profit on this premium which you have received for selling the original 100. And then for the credit uh for after you have rolled

it down to 95. So now anything above 95 is a profit for you. So that is why we have a higher probability of profit compared to when we had the short put at

100. Now the second reason is to give

100. Now the second reason is to give more time for the trade to work out right. So when we are rolling we are

right. So when we are rolling we are also extending our time. So you can see we have extended from the 12th August to 26th August. This way you know if you

26th August. This way you know if you didn't roll and the market went below your strike of 112 on the expiration date you'll be assigned on the shares. But if you have

extended it you given it another two weeks uh wiggle room. the market could just go back up above 112 and it expires worthless and then you'll be able to receive the full credit. So it gives us

more time for the trade to work out.

Now the third reason is to reduce the chances of getting assigned. So this is one of the biggest worries or concerns that many people have when they are selling options is that they're getting

assigned. So in this case in a with a

assigned. So in this case in a with a short put when you're assigned on the short put it means that you'll be buying 100 shares of the underlying uh stock

per contract. So when you increase the

per contract. So when you increase the time length from 12 to 26 or to however far away the expiration date is you reduce the chance of getting assigned because normally people wouldn't want to

exercise their option until it's much closer towards the expiration date. For

example, if you bought a put option with about 200 days left, would you want to exercise it right now even though the market is down? Most likely not, right?

Chances are that you wait closer towards the expiration date to see whether is it still below your strike price before you decided to exercise it. So this reduces the chances of getting assigned. Now the

fourth reason is to get a better assignment price. So in this case most

assignment price. So in this case most likely your the stock has gone way below your strike price. So again let's use this example. Let's say you have 100.

this example. Let's say you have 100.

Let's say the market has dropped all the way to maybe I don't know $70. Now,

you'll be surprised that you actually may not get assigned if there's still quite a number of days left to the expiration, right? I have

many options uh before where you know it has gone deep in the money, but I haven't got assigned on it because the DTE is still more than 30 days. So

sooner or later, if you let this go closer towards the expiration date, then there's a bigger risk of you getting assigned. So if you want to get a better

assigned. So if you want to get a better assignment rate, one way is to just roll it down. So for example, if you roll it

it down. So for example, if you roll it down to $95, so in the eventuality that you actually do get assigned, you get assigned on $95

rather than on $100. So this gives you a better price on your stock, which is a $5 difference, right? So if you know you're going to get assigned anyway, you

rather get assigned at a lower price than a higher price. Okay.

Now the fifth reason is cost basis reduction. And this is uh one of the key

reduction. And this is uh one of the key reasons why a lot of people like selling puts because you get all this credits, right? And this credit can really help

right? And this credit can really help uh reduce the cost of the stock, the underlying stock if you were to get assigned. So in this case, let's say

assigned. So in this case, let's say 112, you get assigned on it. So instead

of buying it at 112 you you first of all you'll be you'll be assigned at 112 of 100 shares but when you have the 82 cents it will remove uh you will be

reducing the overall cost of this right so you minus82 so this gives you roughly an average price of 1118

right 11.18 so if you had not received this credit at all you'll be going long at this price but imagine if you could Keep rolling it down and each time you get a

credit, this will reduce the cost basis of this price until you could even get all the way down to maybe 110 or even lower.

There are different type of shortput roles that you need to understand when we are rolling shorts. The first of which is rolling out. So rolling out just basically means to roll to a

further expiration date. Very simple.

You are basically just adding time. So

in this case, you see we have rolled from 12th of August to 26th of August and we get a credit. If as long as you keep the same strike and you're rolling

out to a further expiration date, you will mostly always get a credit unless it's extremely deep in the money, then most likely it's uh harder to get a credit. But for the most part, you will

credit. But for the most part, you will be able to get a credit because you're adding time. The next type of role is

adding time. The next type of role is rolling out and down. And that's a combination of two rolls. So basically,

you're just rolling to a further expiration date. And then you're rolling

expiration date. And then you're rolling down to a lower strike price. And for

this, you should be able to get a credit because whenever you're rolling out, you get more extrinsic value. And you can use this extrinsic value to offset the lowering of your strike price. So this

is the most common rule that you would do or most people would do because it just lowers your your strike price and increases the chance of you profiting on

this on this trade. Right? So when you lower the strike price, there's a lesser chance for you to get assigned as well.

Now the third type of role is the least common type of role, but there are some people that actually, you know, do this.

And I also have done this before and I'll show you a trade example later on of of when I would roll up my uh put option because most of the time nobody really wants to roll up right if the

price let's say for example you had a strike at 112 and if the stock price does not touch 112 just dwindles somewhere above here you know all you have to do is just let it expire

worthless and you just receive the full credit of the short put that you sold it for in the first place right there's no need for you to roll it up to a higher price and then risk it the market coming

down and then you getting assigned at this price. Right? So this is the least

this price. Right? So this is the least common role but normally when people want to do a roll up that's because they think that the market will continue to go up and they want to receive some

credit on this. So for this what you do is simply just roll to a higher strike price. Now there's one thing you notice

price. Now there's one thing you notice is that you do not see a roll down. You

do not see a rolling down uh just on its own.

And the reason is because when you roll down, it will never be for a credit. You

see, when you're rolling down, you're actually having to pay rather than receiving a credit. And that's because the option prices are getting less uh

getting cheaper and cheaper on the way down, right? So, for example, if you

down, right? So, for example, if you have a 112 strike price uh versus a 100 strike price, this will always cost more for a put compared to this. So, if you

are rolling down, what you're doing is you're buying the more expensive uh put option back and then you're selling a cheaper one.

So, this will never give you a credit.

It will always be a debit. So, let's

say, for example, you're buying this back maybe for, let's say, $5 and then this all the way back down, you can only sell for $1. Then, your net is actually

a negative $4. So, that is why uh people don't really roll down and I wouldn't suggest that you roll down as well unless you have a very good reason for wanting to do that. All right. So

basically these are the three types of rows.

Now that you know the there are three different type of rows when do you exactly roll them? Okay. So there are three scenarios. So the first scenario

three scenarios. So the first scenario is when the short put is in the money.

So this is the most common one. So for

example you have a short put say at around 109 uh and the market has dropped down to uh 101. So this is in the money already. So

101. So this is in the money already. So

this is the time where you want to start rolling to avoid you know getting the possibility of getting assigned. So once

you roll most likely you want to roll out and down. So you roll to a further expiration date and you try to roll as down as far down as possible of a strike

price that you can get. Okay. So this is the first scenario which is to roll when the short put is in the money. Now the

next scenario is when the short put is at the money. Now, this is the most defensive, right? So, you most likely do

defensive, right? So, you most likely do not want the uh put to have any chance of getting assigned. So, in this case, you wait until the uh stock price

basically reaches your strike price and then you start to roll. Okay? So, most

likely you'll be doing a rolling out and rolling down to a a lower strike price.

So this is the most defensive and also the one that you have the least chance of getting assigned. But the drawback of this is that you would have to keep

rolling out to a further expiration date the moment the price reaches. So imagine

if you had from this price uh you roll down to say a price around $90. But if

the stock drops again, you have to roll out again. And each time you're rolling

out again. And each time you're rolling out, it's always a further and further expiration date. So if you started off

expiration date. So if you started off with 45 days, if within the next 5 days you wrote uh the market has dropped down to your next uh strike price of your

short put that you rolled to. So 5 days has passed. So now from 40 days you will

has passed. So now from 40 days you will be rolling to maybe 90 days, right? So

and if another 5 days has passed and it dropped again, then you want to roll from here. Maybe this time you have to

from here. Maybe this time you have to roll to 150 days. So what happens is that if the market does go up, you can't

exactly realize this profit immediately.

You have to wait until the 150 days have passed before you can realize the full uh profit, the credit that you receive on the short put and the subsequent

roll. So while it is the uh put rolling

roll. So while it is the uh put rolling option where you get the least chance of getting assigned, it's also the one where uh it takes the longest for you to fully realize your profit. So the third

scenario to roll is when the short put is out of the money and the market is going up. Now this is the most

going up. Now this is the most aggressive and this is also when you feel that you know you have no chance or there's very little chance for the market to come back down again after that. So for this you want to try and

that. So for this you want to try and capture more profit on the short put right. So for example if you have sold

right. So for example if you have sold this let's say for $1 and you see that hey there's a support down here and maybe you look at the indicators is indicating that it's oversold and you think that instead of this going down

you're thinking that there's a very good chance it could go back up.

So what you could do is to roll it up.

Maybe you can roll up below this support area. All right you can roll below this

area. All right you can roll below this support area. Let me just change the

support area. Let me just change the color. So you can just roll up to the

color. So you can just roll up to the next support uh below the next support maybe at $96. And then for this maybe you can collect an additional maybe 50

cents or maybe even maybe even a dollar on it. So this way you get uh both of

on it. So this way you get uh both of the credit total of $1.50. So if the market really does shoot up in the end and expires above this strike price, you get this full credit. So this is the

most uh aggressive way that you want to roll. And in fact I have actually uh

roll. And in fact I have actually uh done this on a trade on FICO which I want to share with you right now. So

this is FICO which is fair Isac corporation. So on this date basically I

corporation. So on this date basically I saw the market was coming down. It has

been oversold for for quite a while right now and the market has coming has been coming down quite uh very strongly.

So I decided that hey on this date you know I wanted to sell a put because I feel that fair is corporation you know FICO is a pretty solid company strong fundamentals they're the one with the

FICO credit scores and most of the institutions right now are still relying on FICO scores you know to assess their clients so I decided that you know if I were to actually get few on the short

put I wouldn't mind as well because I have the cash so for this trade on the 18th of uh November you can See down

here, I sold the uh 360 put and received a pretty nice credit. It's about $14.

So, what I did down here is I sold uh pretty much an at the money uh put option. I saw an at the money put option

option. I saw an at the money put option for 360, received $1410.

Now, a few days later, right, just a a few days later, only roughly about five, six days or so. All right, the market went below my strike price. My initial

strike price was at 360. Okay, and then it went down all the way to around 342, which is roughly down here. So, this was roughly

where my break even price is. So, I

thought to myself, you know, I think I want to try and roll out and down to try and get a better price, right? because

at that point of time it seems like you know there's a lot of relentless selling and I just figured that if the market was to continue to go down uh I would

like a 350 I wouldn't mind a 350 I mean 360 was good but if I could could get 350 filled I wouldn't mind that as well.

So what I did was I rolled the short put down to 350 and I received a credit of 76. So that's $76. So, as you can see,

76. So that's $76. So, as you can see, rolling again just means to buy back the 360. I bought back the 360 and then I

360. I bought back the 360 and then I sold right to open. I sold the 350 put.

So, in essence, I'm basically just closing out this loss and then selling another one to make up for more than the loss that I made. So, this essentially rolling. So, I rolled down to the 350

rolling. So, I rolled down to the 350 strike price. Now, let's see what

strike price. Now, let's see what happens next. So on the uh 31st of

happens next. So on the uh 31st of December, uh the market shot up, right? Mark uh

FICO went all the way up and uh in hindsight, it was quite unfortunate that I didn't get filled because it would be fantastic if I had been filled at $350

and I would ride this profit all the way up here. But of course, as uh fate would

up here. But of course, as uh fate would have it that the market started to rally back up. So when it rallied back up so

back up. So when it rallied back up so strongly, I felt that you know there was very little chance that it would come all the way back down to 370. So instead

of just getting that uh you know to be satisfied by just letting my option expire, I decided to roll up. So I

wanted to roll up to the 370 strike price which I felt was still quite a decent uh distance away from you know my

short put getting uh touched. So on this date on the 31st, what I did was I bought back the 350 put and then I sold the 370 put. So this is basically me

rolling uh out. I I rolled it to a further expiration date and then I rolled it up as well. So this gave me an

additional $243 in credit total of $243.

So this is one of the reasons or one of the times when you also can consider rolling up when you can see you know there's a strong move up and you think that the market has a stronger

probability of it going up than it going down.

So sure enough later on on expiration date it expired worthless. So as you can see from from this point on it actually it shot up even more. So, like I said,

you know, as fate would have it, I didn't get filled at the 350, 350 or 360. You know, if I have gotten filled

360. You know, if I have gotten filled on this, it would be a very nice profit, right? But that's fine as well because

right? But that's fine as well because I've got a pretty decent credit all together for this trade. So, this trade, you can see total I made $14 plus $2 and

another $1 between these two. So, total

roughly about $17. So that's $1,700, which is not too bad for this trade. All

right. So I want to explain to you the difference between rolling short when it's uh in the money versus when it's at the money. And this is very important to

the money. And this is very important to understand because it is uh understanding how you transfer extrinsic value. So for this just take a look at

value. So for this just take a look at this example. This is IWM. [snorts] So

this example. This is IWM. [snorts] So

right now the price is uh 178.69. So

let's just take uh 179 just we will just round it up right.

So let's just imagine right now the price is at 179. Okay. So let's compare the two different rolling. So for this

one you can see that this is uh your rolling and in the money put. So the

strike price which you are rolling from is from 185 to 180. So, what this means is that you originally had a uh short

put at 185. Okay, you shot a put at 185 and then the market, all right, the market most likely, right? It went all

the way down, okay, to the 179 price.

So, your short is now in the money. All

right, so what you did is you rolled it.

As you can see, you rolled it from 185 to 180.

So, we rolled it all the way down. Let

me just change the color on that. Right,

we roll it down to 180 which is uh pretty much uh at the money. And then

you notice that we are able to still get a credit for rolling this. So this is 23 cents and we roll out to a further expiration date. So this is the uh

expiration date. So this is the uh lowest strike that we could roll down to uh to get a credit. If we were to roll any lower, this would become a debit. So

as much as possible, we always want to keep it as a credit. So when we roll down, we could roll down $5 in strike price. Okay. So this is an in the money

price. Okay. So this is an in the money roll. This is an in the money put

roll. This is an in the money put option.

So let us compare it if we were to roll it when it is at the money. Okay. So uh

let's say the market now comes down here and then when it touches our strike price at 179 in this case 179 then we decide to roll. So from 179 we can roll

it all the way down to 170. All right you can see 179 we rolled

170. All right you can see 179 we rolled down to 170 and we could get a $3 credit. So this is the lowest that we

credit. So this is the lowest that we can roll to for a credit. Okay. So, if

you notice, this row is a $9 roll, whereas for the in the money put option, you could only

roll down $5 in strike price. And the

reason is because now if you already watch the video where I talk about in the money put options, you will uh remember that the in the

money put option consists of two uh values, right? First you have the

values, right? First you have the intrinsic value and then you have the extrinsic value. So recap intrinsic

extrinsic value. So recap intrinsic value is just basically the difference in price between the strike price and the current stock price. Right? So this

in the money. So the reason you cannot roll much uh to a lower strike price compared to the at the money role is because most of the value of this uh in

the money is intrinsic value. That means

you have very little extrinsic value and we have very little extrinsic value.

There's not much you can transfer to the following expiration month. Whereas for

the at the money it is 100% exttrinsic value. So there is a lot of extrinsic

value. So there is a lot of extrinsic value for you to transfer to the following uh expiration date. So that is

why when the uh strike is when the uh price is right at the money, you're able to roll much further down compared to if

you had an in the money uh put option.

Now this this rolling down will actually uh this $5 you see down here will get lesser and lesser as you get deeper and deeper in the money. So, for example, if

instead you had another strike, let's say your strike is 190 instead, then in this case, you wouldn't be able to roll down $5. You probably may only roll down

down $5. You probably may only roll down maybe $2 to $3.

So, this is the thing to understand. The

further you let your put option get in the money, the lesser you're able to roll down uh the strike price. All

right? If we were to compare to the same expiration date as the at the money, right? The on the other hand, the

right? The on the other hand, the positive side of waiting until it's in the money before you roll is that you actually give time for the market to recover. You give time for the stock to

recover. You give time for the stock to actually rebound back up, you know, before you decide to roll. All right? So

for example, you had a short put let's say at $180 and let's say the market goes down. All

right, it could before you decided to roll it could come back up, right? So in

this case some time has already passed and when it goes back up a lot of the extrinsic value which you sold it for initially would have already expired.

Now if you had actually um rolled it the moment it touched your strike price.

So let's say in this case let's say you decided to roll it the moment it touched this uh strike price of your shortput and you decided to immediately roll it

down. Then what happens is that you have

down. Then what happens is that you have already extended your time. So maybe

this is from a say 30 days you have rolled it out maybe to 60 days and then the market actually did go back up in the end. So

that means in the first place you may not even have to roll this short put because it went above the initial strike price which you had and then maybe some time would have passed and then you'll

be less than 30 days and you can just wait a little bit longer and this could most likely expire out of the money and you keep the whole credit. But because

you have already rolled down instead of waiting just 30 days, you now have to wait much longer before you can realize the full profits on this uh strike price which you have rolled down too. So this

is the difference between uh rolling in the money and at the money and it's very uh important for you to understand especially when you start to make the decision to roll your short put.

The very first method is to roll when there's 21 days to expiration left. Uh

if it's in the money, if it's out of the money, you don't touch it. The moment it gets in the money, then you start to roll it. So, for example,

roll it. So, for example, let's say you have a a put at 180. All

right, let me just change the color of that. Let's say you have a short put at

that. Let's say you have a short put at 180. So, during this whole time, let's

180. So, during this whole time, let's say you sold this during the uh 45 days to expiration date. All right, that's 45 days to DTE. So during this whole time,

regardless what the market do, if it goes down, up, all the way down, no matter where it goes to, right? You do

not do any rolling until you reach the 21 days mark until it becomes 21 days to expiration. So when 21 days, you look at

expiration. So when 21 days, you look at your position and you take a look at where it is. If it's in the money, then you start your roll. If it's out of the money, you leave it alone until it

becomes in the money, then you start rolling again. So, there are some pros

rolling again. So, there are some pros and cons with this. So, the pros is that this is a very simple uh method of rolling and the least time consuming.

So, if you don't really have much time to stare at the screen or maybe you have uh you're working full-time, then this is the best thing because all you have to do is just monitor when it's 21 DTE, look at your position. If it's in the

money, you roll. If it's out of money, you just leave it. So that's a very simple way to manage it. And there's

also a very low probability of getting assigned because there's still quite a number of days left to expiration. Right

now, of course, you still can get assigned if it's very, very deep in the money. If you want to play safe, you

money. If you want to play safe, you could maybe just roll it. Instead of,

you know, 21 DTE, you could say 30 DTE.

You could wait until 30 DTE and you see if it's in the money, then you decide to roll. Because chances are when there's

roll. Because chances are when there's still 30 days left with to the expiration of this option, there's still quite a bit of extrinsic value. So when

there's quite a bit of extrinsic value, there's very little chance that this option will get exercised. So when you keep it uh the the rolling to uh number

of days like this, there's very little chance of you getting assigned and at the same time you also allow time for the trade to work out. So for example as

I mentioned earlier let's say you have a 45 days DTE and this is the strike price that you have say again at 180. Now if

you decided to roll the moment it touch this strike price it may touch maybe in three days then you're going to roll it

down immediately say to 170 right but if you just use this 21 DTE method it may just go down

and then come back up and all this is before 21 DTE so you didn't have to do anything at all if you base on this 21d you didn't have to roll at all so it

allows time for the trade to work out in your favor as well. Right? So, those are the pros. Now, the cons is that it could

the pros. Now, the cons is that it could be deep in the money when it's time to roll. And when it's deep in the money,

roll. And when it's deep in the money, as you as I shared with you earlier, it becomes harder for you to roll down, right? There's lesser strike price. And

right? There's lesser strike price. And

in certain cases, if it's so deep in the money, you realize that you can't even roll down. Uh unless you roll to

roll down. Uh unless you roll to extremely far away, right? Like maybe a year out, then you can roll down. by

then it would kind of defeat the purpose of a shortput because short put is meant to have theta is to be you're meant to have time decay and if you were to sell

an option that is uh one year away the decay is so little that kind of defeats the purpose of selling the short put in the first place. So this is one of the cons.

The second thing is that you may not be able to roll for a credit as mentioned.

So if very deep in the money then it'll be very difficult for you to roll for a credit. And in some cases you will

credit. And in some cases you will realize that even though you roll out to a further strike uh sorry to a further expiration date but still the strike same strike price you actually have to

pay a debit right because of the bid and ask spread at a further away your bid and ask spreads become wider. So in this case there's more slippage in terms of

your uh order. So that's how you would you know in certain cases you would even get a debit rather than a credit. Okay.

So the second method is the aggressive method which I've shared with you earlier and that is to roll when it's at the money. So the pros of this is that

the money. So the pros of this is that you won't get a sign because the moment it reaches your strike price you're just going to roll right if the market comes down here all right you're going to roll

it down and if it drops again you're just going to roll it down again. And

you just keep doing this rolling and rolling basically to perpetuity, right?

You roll until the furthest strike uh furthest expiration date possible.

And yeah, and that's why you can roll to the furthest strike possible because it's at the money. You have the most extrinsic value as explained earlier.

And also you have the highest win rate.

Why? Because as mentioned uh much earlier in the slides when you have a lower strike price it gives a much better chance for the stock to

eventually uh recover. For example, it's easier for the market right to go above 180 than it is to go above 190 or or

$200.

Now the cons of this method is that there is a longer expiration date which means it takes a longer time to realize your profits. So this is uh some of the

your profits. So this is uh some of the things that I've done before. I've tried

to roll it at the money to the point where I was stuck with a short put of roughly almost a year to go. So I'll be stuck in that position even though the market have since then rallied way above

my strike price. The the the option the short put which I had still had many days left to go. Now I could definitely close it but if I close it you know

there will be still some uh value that's lost or you may not get more profit as you originally did earlier on because of this rules and it's also the one which you have the

most active management. So you can imagine that you always have to ensure that uh your platform or rather some alerts if you have that you will roll it

the moment it touch your strike price.

Now the third method is to roll when it breaches your break even point. So there

is a break even point which is basically the uh strike price and you minus off your premium. All right. So let's say if

your premium. All right. So let's say if your strike price is $100 you sold it at 100 and then you receive a dollars you

receive $1 in premium. So in this case your break even will be $99. All right.

So the moment the price if it comes down to $100 which is at the money you don't roll it yet. You wait until it goes to $99 then you can consider rolling. So

this is what it means to roll when it breaches your break even point. All

right. So what are the pros? The pros is that you give more time for the trade to work out. So compared to this, if you

work out. So compared to this, if you were to wait until it goes in the money, all right, it may just go back up before touching your break even point. So, in

this case, you actually didn't even have to roll at all. And also, you have a very low probability of getting assigned because you're not letting it go very deep in the money, right? If it goes to

your break even point, chances are it's not very deep in the money. So, at this point, you still are

money. So, at this point, you still are able to roll uh out and down for quite a good number of uh points down. Okay.

Now the cons of this is that you can't roll the strike price down as far as the at the money roll. So again I mentioned this earlier at the money get the most extrinsic. So most extrinsic transfer

extrinsic. So most extrinsic transfer you get more uh you get a lower strike price of rolling compared to this and you need active management as well. So

you have to always monitor when it hits the break even point then you start to roll.

So let's say for example you decide to sell a short put because you think maybe you know the market might go up. So

right now you have a short put position on. So for this example I use a short

on. So for this example I use a short put strike of around 382. So let's say for example the market did not behave as you have expected right it did not go up

instead it comes down right. So at this point most likely you will see a loss on your short put position. So what do you do? Is there anything to do at all? So

do? Is there anything to do at all? So

it really comes down to exactly where the market is, right? So the first thing we want to do is to see the risk profile of our short put, right? We want to take a look at the P&L graph which you can

actually uh see from your broker like Think or Swim or even the Tasty Trade platform. So this is the short put risk

platform. So this is the short put risk profile. So the first thing you want to

profile. So the first thing you want to do is to identify where your short put strike is and that is at this point down here. Right? So at this point down here,

here. Right? So at this point down here, you can see it goes all the way down here. This is where your shortp put

here. This is where your shortp put strike is. But you notice that your

strike is. But you notice that your profit and loss or rather your loss does not happen until after this point down here. So you can see this red line down

here. So you can see this red line down here. So this is actually your break

here. So this is actually your break even point. So that means to say that

even point. So that means to say that even though the price may go past this short strike of yours, you are still not necessarily in a loss if it stays above

the break even by expiration. So as long as it's above this break even point by expiration, you will still be in a profit. So the only time that you will

profit. So the only time that you will lose at expiration is only past your break even point. So this is what we want to take note of that is your break even point. Now you will notice that

even point. Now you will notice that there are two lines down here on this P&L graph. You notice there is the

P&L graph. You notice there is the purple line and then there is the green line. All right? So if you are new to

line. All right? So if you are new to reading this uh P&L graph basically the green line is the P&L for your shortput at expiration whereas for the purple

line is basically the P&L graph for today right so every day it will change right so as days pass this purple line will slowly go up to fit to this green

line down here so what it means is that as the position matures right as days pass this purple line will slowly start to go up in a profit. So that means to

say even though if today if the market goes all the way down let's say to around 385 which is somewhere down here what you will see on the P&L of your

position is that you will be losing money right you'll be losing almost close to $500 but that doesn't mean that you need to do anything because you are still in the profit zone. So the profit

zone is basically anywhere from this break even point all the way above. So

what you want to do is take note of this break even point and then you can plot it on the chart. So this way you know if it reaches past that point past expiration then you will know you be in

a loss but everything else above it you will be in a profit. So that means if the market is above the break even or the strike price right it's up to you to decide which is the point which you want

to use. If you're slightly more

to use. If you're slightly more defensive then you want to use the put strike point right. So in this case whereby if the market goes past this strike then you will do something but if

it's above this strike you do nothing or if you want to give the trade more room to to move then you can use the break even point as a place whereby if the market goes below the break even point

then you will do something right but if it stays above the break even point even though it is past the strike price then basically you can just do nothing right because you are still in the profit zone

so there's really nothing for you to worry or panic about because if the market just stays there until expiration date, you would still be profitable.

Now, what if the market actually goes below the break even or the strike price? Well, if it does go below the

price? Well, if it does go below the break even or the strike price, then this is where you may need to do something. Okay, so the first thing we

something. Okay, so the first thing we need to understand about short is that this is an undefined risk. So, when it is undefined, it means to say that there is a chance for you to lose much more

than the margin you're going to put up, right? at the margin. You're going to

right? at the margin. You're going to put the buying power effect that you're going to put up, right? So, in this case, you can see this is the short put position. For putting up this position

position. For putting up this position on the spy, you would have to put up roughly 6 to $7,000 in terms of buying power reduction. And this is being held

power reduction. And this is being held by your broker. Okay? So, you will notice the other number is this number, which is the max loss, right? So the max

loss as you can see is $37,614 which means to say that the stock essentially goes to zero. Now in this case it's very highly unlikely because this is an index ETF. But if you were

trading individual stocks then there is still that risk right? There's the risk of individual stocks. Let's say for example you happen to get into SVB Silicon Valley Bank before it went

bankrupt. Then you would be pretty much

bankrupt. Then you would be pretty much facing this big of a loss. All right,

not this big, but you'll be facing the max loss on on that trade, right? If you

put it on. So, when it comes to trading short puts, the difference between this and vertical spreads, which is like the bull put spread, is that the boooo spread has sort of like an embedded stop-loss in place because the lower

part, let's say for example, you were to sell the put option here and then you were to buy another put option there.

This makes the bull put spread. You

really have the inherent stop-loss in place in a sense, right? because the

market can go all the way to zero but you already have your maximum loss already defined in place right so in this case you don't lose more than the spread width right in this case but with

the short put you can lose a lot more than what you actually put up in terms of the buying power effect so to prevent you from losing this max loss what you need to do is that whenever the position

reaches this amount right you start to lose the buying power requirement which you put out for the trade the initial buying power requirement Then you want to cut loss. Right? This is the most important part because we do not want

your loss to go bigger than this because remember when you are putting on any of the trades you need to have your capital allocated, right? So the buying power

allocated, right? So the buying power should be a maximum of 5 to 7% of your capital. That means to say if your

capital. That means to say if your trading account is $100,000, that means you can only trade one contract of this short put. So in the event whereby the

short put. So in the event whereby the market really crashes and then you actually hit this loss right then this is where you need to get out of the position. Get out of the position to

position. Get out of the position to prevent it from growing even bigger. So

the most that you will lose is actually only 5 to 7%. So this is very important because you do not want to let any single trade blow up your account.

Right? If you hear a lot of stories that people say they trade short and they blow up the account it's because they do not have the proper risk management and they did not allocate their capital properly. So as long as you keep it to

properly. So as long as you keep it to this uh percentage right and then you cut loss when it hits the maximum buying power effect this number down here then

you know that it will not be a huge substantial loss on your whole account right you can always leave to fight another day. So if the market is below

another day. So if the market is below the break even point and your loss equals the initial buying power requirement then you need to cut loss

right there is no leeway to this. Once

you see the loss hit on your position you need to be disciplined enough to get out of the position. Now what if the max loss has not been hit? In fact for you to actually hit the max loss of this

6,651 is really pretty rare right? This is

almost about something like a two standard deviation move which happens roughly 5% or less than 5% of the time.

But of course there will be times like for example the pandemic comes then you could be in a risk of actually hitting this loss. But for the most part you're

this loss. But for the most part you're not going to experience this number. So

what do you do if the max loss has not been hit? So this comes down to whether

been hit? So this comes down to whether it's past the 21 days or not right the 21 DTE mark. So this is an important milestone. So I also mentioned this in

milestone. So I also mentioned this in the other two videos in terms of uh managing your losing iron condor and managing your losing credit spread. So

the main reason why we want to manage this at 21 days to expiration mark as the milestone to see whether we do something or not well but first of all is because the chances of getting a sign

on your in the money short put increases. Right? As long as your put

increases. Right? As long as your put option is in the money then there's always a chance for the buyer of the put option to exercise it. And if he exercises the option, you will be

assigned a 100 shares at $382. Which

means to say you need to put up $38,200 to long the 100 shares. And if you do not have the amount, then guess what?

The broker could put you into a margin call where you need to either put up more funds or they may liquidate your position for a loss. Right? So this is one thing that you want to avoid. And

the way you can avoid this is by not letting this option trade go past the 21 days to expiration mark. Because the

time when the buyer is most likely to exercise their option is when the extrinsic value is very little. Right?

Extrinsic value is very little when the option is deep in the money. That's

where the intrinsic value will be very high but the extrinsic value will be low. And when there's very little time

low. And when there's very little time left right in the option, right? That

means it's very close to expiration.

That's also the time when there's going to be very little extrinsic value because when the option reaches expiration all extrinsic value will go to zero. So this is what you need to

to zero. So this is what you need to take note of. So by managing the 21 days to uh expiration mark you will ensure that there is sufficient extrinsic value

that the put option buyer will not want to exercise. Now, the next reason why we

to exercise. Now, the next reason why we want to only manage once it's past 21 days to expiration mark is because it reduces your P&L volatility and the chances of the max loss. So, most of the

biggest losses tend to happen when the option is near the expiration date. And

that's because the gamma will start to really pick up, right? When gamma, one of the option delta starts to really pick up, then what happens is that your

pricing, the option pricing becomes very sensitive to the underlying move, right?

When before if the underlying move let's say for example if it moves a dollar maybe your option price may only look move by around 20 to 30 cents but if the gamma becomes so big then guess what a

dollar move in the underlying stock could result in maybe a 60 cents move a 70 cents move. So this way your your whole idea of getting to a short position right selling premium is to let

theta work for you. But when the gamma gets so big and the pricing gets so volatile then guess what your theta can be overwritten right is being override

by the movement in the underlying stock.

So you can also see that in terms of average performance when you manage at 21 days to expiration is actually much better. Right? So although the win ratio

better. Right? So although the win ratio is slightly lesser than if you hold to expiration but your return as you can see is actually higher than if you hold to expiration and the reason is because

you actually control this number which is the largest loss because a big loss like this can really take out a lot of the winners which you have. So when you manage it at 21 days to expiration you

eliminate the big losses that comes with holding all the way to expiration. So

you can see down here this is done by the tasty trade team. You can see that they've done a lot of studies and in-depth uh research into this. They can

see that if you manage your trade at 21 days to expiration is much more superior than you would hold to expiration.

Right? So that is why we also want to manage it early. So the other thing we also want to take note of is the risk profile at 21 days to expiration. You

see it is possible that at the 21 DTE mark you can actually almost reach full profit of your this short option right so let's say for example this is the price which you started off when you

first put on the short put now the market does not have to really move a lot in order for you to reach almost full profit. Let's say for example if it

full profit. Let's say for example if it just moves $5 to $400 uh the $400 mark down here you will see that actually you have already made roughly about three

quarters about the profit right about the max profit roughly 3/4 of the max profit so there's no need for you to hold even an additional 21 days and then you risk losing all this money if you

see if it goes all the way to 410 even you're pretty much almost at the max profit already. The other thing is that

profit already. The other thing is that if you notice this purple line will start to become even more and more steeper as time passes right as it gets close to expiration. So that means to

say for each day you're holding on to this position, a move, a small move in the underlying stock can really have a big swing in your P&L, right? Let's say

for example, if it goes up, right? Just

a little small move, you'll be able to make uh quite a bit in terms of profit.

But at the same time, if it moves against you, then guess what? You're

going to lose a lot more as well. So at

this point of time, it comes down to a lot of luck in terms of where the direction will go to instead of letting, you know, time decay work in your favor.

So if the max loss is not hit and there's still more than 21 days to expiration left, then guess what? There

is nothing to do, right? The market can come down, you know, you just want to give it time because it could come back up again. And it does come back up, then

up again. And it does come back up, then there really is no need for you to have uh aggressively managed this, right? It

could still be in a profit just as it is. Remember this is a probability gain,

is. Remember this is a probability gain, right? When you put on a short put,

right? When you put on a short put, let's say for example, you put on a 30 delta short put, then there is roughly a 70% chance of profit, right? So you just need to let the numbers play out. Now,

if the max loss is not hit, but there's less than 21 days to expiration left, then this is where you need to do something, right? So there are three

something, right? So there are three options that you can take. So the first option is to simply take a loss, right?

You can always take a loss and then find another setup again and then enter into a trade. And this is the approach that I

a trade. And this is the approach that I like the most. And the reason is because I have many trades going on at one time.

Right? If you have watched many of my other videos, you notice that I do not trade too many underlyings at one time and I like to have many positions on the single underlying. So in this case,

single underlying. So in this case, let's say for example, I have an index ETF like the IWM or the spiders. I'll

have many positions on RF like the iron condor, the strangles, the uh put spread, uh the bag call spread, short put, this kind of trades on many at one

time. So I do not really want to manage

time. So I do not really want to manage every single trade, right? Because if

you have many trades and then you want to manage every single one, it can get a little bit confusing. Rather, you can just let the probabilities play out because if you just leave it as it is and just take loss over the long run, it

will still be in a profit, right? as

long as you stick to the proper mechanics to place on the trade. So even

though you take a loss, it's not going to be a big setback to this whole strategy because remember this is a 70% win rate kind of strategy. If you put on the 30 delta short put that means to say

there's still a chance to lose 30%, right? So when it there's this loss

right? So when it there's this loss right you just want to take it rather than if you choose to do something let's say for example you decide to roll it down then there's a chance to further aggravate those loss because if the

market still continues to crash let's say for example like the SVB situation the Silicon Valley bank then you're going to actually lose much more than compared to if you have just taken the

loss initially right so this is the first option and the simplest one now the second option would be to roll it out right so if you still have a bullish take on this and you think that the

market can rebound, you think that the market is pretty oversold, then you can choose to roll out, right? So, when

you're rolling out, you are actually getting more credit again. And when you have more credit, it helps to buffer uh to the downside in case the market continues to move lower. But at the same time, if the market does come back up,

then you're going to make a little bit more as well because each time when you roll, you're going to receive credit.

And the good thing with shortput is that most of the time, even though it is in the money, you still can roll for a credit. All right? So, if you're not

credit. All right? So, if you're not very sure on how to roll short puts, I actually have a whole video on rolling short puts. It's called uh rolling short

short puts. It's called uh rolling short puts master class. You can go to my channel and watch that video if you haven't watched that already. So, this

is option two. And the third option, last but not least, is rolling out and down, right? So rolling out means to

down, right? So rolling out means to roll out to the next expiration date to the further expiration date and you also roll it down as well. So this way you give more room for yourself to be right.

So let's say for example from 380 let's say you're able to roll the put option down to 375 then guess what you've also push your break even down as well. So if

your break even is lower then you will have a higher chance for this trade to work out as well because in the long term stocks and index ETFs are in this case do want to go up right? Of course

if you choose the right index ETF and the right stocks they have good fundamentals right in the long term they do eventually want to go up. So if you were to just keep rolling it rolling out and down out and down each time

eventually there will be a time whereby your whole position can be taken out for a profit. So let's just have a very

a profit. So let's just have a very quick summary of what we just went through. So first things first, if the

through. So first things first, if the market has not breached your shortput strike or your break even depending on which one you choose, then there's nothing to do, right? Next thing is if

it has breach your put option or your break even point and it has reached your maximum loss, then you need to cut loss, right? There's no point for you to try

right? There's no point for you to try and wait and see because it could get even worse. So the best is to take your

even worse. So the best is to take your loss, move on to the next trade. Now, if

the max loss has not been hit and there's still more than 21 days to expiration, again, there's nothing to do because there is always a chance for the trade to come up. So, you just need to give it time, give it room for it to

work out. Now, if the max loss has not

work out. Now, if the max loss has not been hit, but there's less than 21 days to expiration, then there are three options to take. Either you can take loss, you can roll it out, or you can

roll out and down.

So what happens when your short put is assigned? All right. So as long as your

assigned? All right. So as long as your short put is in the money, right, that's the only time when you can have a chance of getting assigned. If it's out of the money, there's no way you can get assigned. So if it's in the money,

assigned. So if it's in the money, there's always a possibility of getting assigned early. So when you assign on

assigned early. So when you assign on your short put, you will get long 100 shares per contract. So for example, let's say you have sold a put option at the $175 mark. So you can see that the

market is below here. So this is in the money. Anywhere that is below the

money. Anywhere that is below the shortput strike price, it is considered in the money and there's always a possibility of getting assigned. So what

happens when you assign? So when your short put is assigned, the broker will basically uh make you buy 100 shares of the underlying stock. So you're

obligated to buy. So you're assigned on this 100 shares, which means you need to have the capital to buy this 100 shares.

So your broker will take the cash that is needed to fund this 100 shares from your account. So for example, if this is

your account. So for example, if this is uh the strike of 175 that means if you get assigned on this uh shares that means you need to put up $17,500 in

terms of cash or the margin will be normally 50% of it. Now what happens if you don't have enough cash? If you don't have enough cash then this is where you will get a margin call. All right. So

this is very important to understand and what you need to do if you get a margin call. So if you have a cover call

call. So if you have a cover call position, previously I talked about cover call assignment, you don't have to worry about getting into a margin call because that will never happen because

you have long 100 shares and then by selling a cover call basically what the uh position is doing is that if you get assigned your shares will just be taken away. So now your long 100 shares will

away. So now your long 100 shares will be net zero. You have no position. So

there's no way for you to get a margin call. But for the short put is very

call. But for the short put is very different. For the short put, you will

different. For the short put, you will buy the 100 shares of the underlying stock if you get assigned. So this is where you need to have the cash to get assigned on the 100 shares. So here are

a number of shortput assignment questions that you might have. So let's

say for example, you get assigned and then you don't have enough cash. You're

going to get a margin call. So what

happens if you get a margin call? And

what do you do if you get a margin call?

Now what do you do if you're assigned on your short put as well? and how do you avoid getting your shot put assigned? So

these are the questions or rather the most common questions that uh people have when it comes to getting assigned on their short put. So the very first thing you want to take note of is what do you want to do if you get a margin

call? So first of all don't panic,

call? So first of all don't panic, right? A margin call is a very standard

right? A margin call is a very standard procedure. It's not like you committed a

procedure. It's not like you committed a crime. What it just means is that you

crime. What it just means is that you need to top up your account. So if you get a margin call, the broker will contact you to ask you to top up your account. And if you do not do anything,

account. And if you do not do anything, your broker will basically just close out the positions in your account to meet their margin requirement. Right? So

if you have multiple positions on, your broker will just close out the positions that they need to close out in order for you to meet their margin requirement.

Right? So some positions you might be holding on in eventually that it becomes a profit. Well, if you have a margin

a profit. Well, if you have a margin call, your broker could just close that out. All right? So it's very important.

out. All right? So it's very important.

So what you want to know is how long do you have to rectify the situation the moment they contact you. Well according

to FINRA which is the financial industry regulatory authority let me just change that there's authority right it says that you have

roughly two to five days you have two to five days in order to rectify this situation. So many margin investors are

situation. So many margin investors are familiar with the routine margin call where the broker asks for additional funds when the equity in the customer's account declines below certain required levels. So normally the broker will

levels. So normally the broker will allow from 2 to 5 days to meet the call.

So this is the time where you want to rectify your shortput situation or rather the 100 shares that you are long.

So if you are assigned on the short put, you simply have to do these two actions, right? You just have to first sell off

right? You just have to first sell off the 100 shares and then you sell the put option at the same strike but with a longer days to expiration. You need to

sell off your 100 shares because now you are longer 100 shares. So when you're long 100 shares, what you need to do is you need to sell off this one. So now

you become a net zero shares position and then you sell one short put. All

right. So basically what you're doing is you're reinstating the position which you originally had which is the shortput position. Now you want to sell it at the

position. Now you want to sell it at the same strike price. Of course that is the way to resume the position but this time with a longer days to expiration. Now

chances are that if you are assigned on your short put there must be most likely less than 30 days on your expiration.

Right? That's generally the time where you will get assigned if if you do get assigned at all. So you want to choose a days to expiration, right? The DTE to be longer than 30 days. You want it to be

more than 30 days. And the reason is because when you have a expiration date that is longer than 30 days, there's going to be some exttrinsic value left.

Exttrinsic value is very important when it comes to knowing whether you're going to get assigned or not. All right? So

this is what I'm going to talk about in the next slide. But for now, what you need to understand is that you want to reinstate a position that is longer than 30 days. All right? So this is all you

30 days. All right? So this is all you need to do and you want to do this in a single order ticket. So this way you do not have like a price difference between your short put and the the 100 shares.

So you can do this in the think or swing platform. All you have to do is to right

platform. All you have to do is to right click on the put side, right? The strike

that you want on the put option and then you just click the covered stock position. So what it does you can see

position. So what it does you can see that it sells off the stock which you have the 100 shares and then you sell the one put option. So the moment you do this the shares will be sold away. So

you relieve the margin uh the buying power needed right you relieve all the margin that have used up where you borrowed from the broker and then you resume back this short put position again. So that's simply it. So when you

again. So that's simply it. So when you sell your shares and sell another put option at the same strike, you're simply resuming your initial short position. So

one thing you want to understand is how to avoid this situation in future.

Right? So this is when you're in danger of early assignment. So your likely of early assignment on your short when firstly your short put is in the money

and the extrinsic value is very little and there's very few days to expiration.

The key thing down here is the extrinsic value. So, as long as there's still a

value. So, as long as there's still a decent amount of exttrinsic value left in the shortput, you're unlikely to get assigned even though you're in the money. Now, you may not realize this,

money. Now, you may not realize this, but actually a early assignment is not as common as you think. So,

here's what we're going to do, right?

So, we're going to try and put oursel into the mindset of the put buyers and then from there, we're going to understand a little bit whether we're going to get assigned. And from the put buyers point of view, we're going to see whether we're actually going to exercise

this put option. So for example, you sell a put option here. So for example, you know, $120 is the place where you think that the market will continue to go up, right? So just as an example, we're going to sell a put option $120.

So you sold an out of the money put option for $2. Now let's flip the table around. Turn the tables around. And now

around. Turn the tables around. And now

let's see things from the put buyers perspective. So you sold the put option.

perspective. So you sold the put option.

So most likely you would have sold it to somebody who wants to buy a put option.

All right? So when they buy the put option, they will pay $2 for it. All

right? So they pay $2 for the out of the money put option at the same strike price. So you're the counterparty of

price. So you're the counterparty of this put option, right? So the put buyers is the counterparty of the put option that you sold. Now why would they want to buy it? What's the reason why

someone would want to buy a put option?

So there are two reasons. Number one is to speculate to the downside. That means

all they're doing is just buying the put option and hopefully they want to sell away the put option for a profit. Most

of the time that's the case, right? The

other way is they want to protect their long stock position. So maybe they had a long stock position already. Maybe they

they bought somewhere down here. All

right, let's just say that they bought 100 shares at this price. So they're

afraid that the market will go down, right? So if the market goes down at

right? So if the market goes down at least they have some protection which means they have kept their maximum loss to where the put option strike price is.

So here let's play a little game of would you exercise the put option if you are the put buyer. All right so a lot of people are afraid they get assigned. So

in order for you to really understand whether you will actually get assigned you need to put yourself as the put buyer. So imagine that you are the one

buyer. So imagine that you are the one that actually buys this put option. Then

I'm going to give you a number of scenarios and then from this scenarios I want you to ask yourself whether you would actually exercise the put option.

Okay. So the first scenario, so scenario number one, you already bought a put option at 120 strike price. You bought

it for $2 and now the stock has dropped to $115. So this is actually a very good

to $115. So this is actually a very good scenario for you because now you're in profit with the put option, right?

because you bought a put option, you actually want the market to go down. So,

here are the details of your put option.

So, your put option is now worth $6, right? You bought it for $2, it's now

right? You bought it for $2, it's now worth $6. And this uh put option

worth $6. And this uh put option comprises always of uh two values, right? If it's in the money, there's

right? If it's in the money, there's always intrinsic value and exttrinsic value. So, intrinsic value is $5.

value. So, intrinsic value is $5.

Basically, it's just the difference from the strike price to where the current price is. So, because there's a $5

price is. So, because there's a $5 difference, the intrinsic value of your put option now has $5. It started off with $0 because it was out of the money.

But then as it goes in the money, you now start to pick up intrinsic value.

But your extrinsic value, right, is now only $1, right? So at this point of time, ask yourself this question. Would

you exercise your put option? Right? You

are the put buyer. Would you, if you will exercise your put option, it means that you will now be short 100 shares at $120.

So, would you exercise your put option and be short 100 shares at $120?

Well, let's walk through this. All

right, let's go through this very methodically. If you were to exercise

methodically. If you were to exercise your put option at $120, if you were to close your position to buy it back at 115, what would be your profit? All right, so if you exercise

profit? All right, so if you exercise it, it means that you're now you're short at $120 and then now the current price is 115. And let's say that you can

actually buy back right now at uh at a spot at 115 total you make $5. Now this

is a profit. Of course, you made money.

But if you will take a look at the put option, if you actually sold the put option, you would be able to collect $6.

So you bought for $2. All right? And

then you sell for $6. So your profit would be $4.

But if you went ahead to exercise your put option, that means you paid $2 for it and then you sell it off and you receive $5, your profit would only be

$3. So would it actually make any sense

$3. So would it actually make any sense for you to want to exercise this put option? Definitely not, right? Because

option? Definitely not, right? Because

you could just simply sell the put option and then make much more money because you will make this additional exttrinsic value. If you had went ahead

exttrinsic value. If you had went ahead to exercise your put option, it means that you have forego all the extrinsic value which you have in this option. So

in this scenario, it definitely does not make sense because you still have extrinsic value in the put option. Now

let's flip the rule again. So let's say you sold the put option. If you sold the put option right down here and now the market right, the stock went below your strike price is in the money. Is there

any reason for you to panic that you might get assigned early? Definitely not

because you have a dollar in exttrinsic value left. You see, when the put buyer,

value left. You see, when the put buyer, he exercises the option, what he's doing is actually he's foregoing his extrinsic value to give it to you. So in this

case, you benefit even though you're assigned early because when you're assigned early, all you have to do is just do that two actions which I mentioned, right? All you have to do is

mentioned, right? All you have to do is just sell away the shares and then you reinstate your put option again at the same strike price. All right. So, what

about scenario number two? Now, scenario

number two is if the stock drops all the way down even further to $110.

So, would you exercise your put option?

So, let's take a look at the details now. So, the put option is now worth

now. So, the put option is now worth $10.25 of which $10 is intrinsic value.

That means that is the difference from $120 to $110. So that's $10 difference and then you still have an extrinsic value of 25. Now on one put option that

is $25. So are you going to exercise

is $25. So are you going to exercise your put option? So again what happens if you exercise? If you exercise you're going to be short

100 shares at 120 and then the current market price is 110. So if you were to close it straight away, right, you will make $10. But what if you sell the put

make $10. But what if you sell the put option instead? If you sell the put

option instead? If you sell the put option instead it will be $1025. So now

it becomes a question do you want this 25 or not right? So most likely you would want right that is still money right that's $25.

Now you might be saying that you know I want to exercise my option so that I can hold on to this 100 shares so that as the market continues to drop I can still

make money on it. Right? If you're

thinking of that, then there's no difference if you still held on to your put option. Because if you still held on

put option. Because if you still held on to this put option as the market drops, do not forget that your intrinsic value actually also increases

together with the stock dropping, right?

So, if the stock drops all the way to $100, then you will still be making $20 in terms of intrinsic value. If you want to exercise this uh put option with the

shares, you will still have $20 of intrinsic value as well. The only bonus with the put option is that you could still have some extrinsic value even though it went all the way down here.

Right? So, at this point of time, there really is no uh reason for you to want to exercise your put option as the put buyer. Now, you might be asking what if

buyer. Now, you might be asking what if you are there, you know, you got this put option just to protect your long stock position. So, you have 100 shares.

stock position. So, you have 100 shares.

Let's say maybe you bought at $125, right? So you got 100 shares down here.

right? So you got 100 shares down here.

So at this point of time, let's say it drops to $110.

Would you want to exercise this option and then you just take the loss at $120?

Would this make sense to you? So if it was me, I definitely not want to exercise because firstly, I've already got this position on, right? And I've

already locked in the maximum loss that I can lose at 120. So, it doesn't matter if it goes to 110 or it goes all the way down to, you know, $0. It doesn't matter

because I've already got this put option down here that has already secured the maximum loss for me and I can exercise this anytime I want before expiration.

So, if there's still some time left before the option expires, maybe there's still like 30 days left. If there's 30 days left to expiration, why would I want to exercise the put option now when

I can exercise it another time, right? I

can exercise it any other time. What I

rather do is I'll wait to see whether the stock actually goes back up because ultimately what I want is for the stock to go up because I have a long 100 shares position. That's what I want to

shares position. That's what I want to see. I want to see that the stock

see. I want to see that the stock actually goes up. So why would I want to cut it off right now and then in the event where the market actually rallies back up in the next 30 days, I'm going to regret, right? So I rather just keep

this on as an insurance. I'll keep this on as an insurance until in fact the very last day where I see that there's no chance for the market to go up. Then

I'm just going to exercise it. So that's

the only time I will want to exercise if I have a long stock position. So in both cases, there is no reason for me to exercise this put option when the stock

drops to $110 and there's still some extrinsic value left. Now let's take a look at the next scenario. Now, the next scenario, scenario number three, is that

the stock drops all the way to $105 and there's still 30 days to go in expiration. All right, so the put option

expiration. All right, so the put option is now worth $155 of which $15 is intrinsic value and 5 is extrinsic value. Now, would you exercise your put

value. Now, would you exercise your put option? So, take a moment to think about

option? So, take a moment to think about this. You can pause the video. All

this. You can pause the video. All

right. So, if you have really thought hard and thought long about this, you'll realize that there may not actually be a reason for you to exercise the put

option because there's still quite a bit of time left. There's still 30 days to expiration, right? And if I was to

expiration, right? And if I was to exercise my put option right now, what am I going to do with this 100 shares, right? Am I going to close it out

right? Am I going to close it out immediately at 105? And as we have seen in the previous examples, uh the previous scenarios, if you were to close out immediately, it makes no difference than if you were to just sell off the

put option because the put option already have the embedded intrinsic value from this point all the way to here. And with the put option, you still

here. And with the put option, you still have the added benefit of this exttrinsic value. So in this case, you

exttrinsic value. So in this case, you at least still get $5. Now, the key thing is that there's 30 days to expiration left. So there really is no

expiration left. So there really is no hurry for you to exercise this uh put option because remember when you are exercising a put option what you're doing is you are foregoing the right of

this exttrinsic value. All right. So as

long as there's still exttrinsic value for you it will be better off for you to just sell off the put option if you want to capture the profits at no time during this time down here that you would want

to actually exercise this put option. So

it goes the same whether you're speculating or if you are protecting your long stock position on this stock, right? So you have 30 days to go. If you

right? So you have 30 days to go. If you

still have a long stock position, again, you would just wait, right? To see if the market actually bounce back because at the end of the day, you're not trying to profit from the put option if you are using it as an insurance. You're using

it as protection. If you're using as protection, all you're doing is just waiting to see that whether the stock will actually bounce back up

before this uh option expires, right?

And if the option is going to expire on the day itself, let's say it's the last day left and you see that it's below your strike price, then of course you go ahead to go and exercise it to cut the

maximum loss that you have right at this strike price and where you went long 100 shares.

All right, so let's take a look at the last scenario. So scenario number four,

last scenario. So scenario number four, same thing. The stock drops to $105. So

same thing. The stock drops to $105. So

same as scenario number three, but the difference is that there is 7 days to expiration left. So there's only 7 days

expiration left. So there's only 7 days and now the put option is worth $51. All

right, so this is a typo. So it's $51.

The intrinsic value is $15 and there's 1 cent left in extrinsic value. So now

here comes the question. So let's say for example you're just speculating to the downside right you do not have any long shares does it make sense for you to now exercise your put option and now

become short 100 shares well the answer is it can be because you see you might want to still hold on to this position right so for example you

say that you want to short 100 shares and your target is actually not $ 105 your target might be $100 maybe you want to take your profits at $100 but because

there's only 7 days left in this uh put option, you might just want to go ahead and exercise it and then just hold on to the short 100 shares until it reaches $100, right? You don't want to wait to

$100, right? You don't want to wait to see the next seven days to see whether it's going to reach the $100. So, at

this point of time, yes, there is a reason for you to exercise the put option also because there isn't much extrinsic value left because there's no real incentive left for you to just sell the put option because you're only going

to get an additional $1, right? Even

after commission this $1 is going to be gone. So you rather get assigned because

gone. So you rather get assigned because you plan to continue holding it all the way it goes down further. So in this case then you would want to exercise your put option. Now think about this as

the buyer of the put option. Why are you now suddenly wanting to exercise your option when the previous three scenarios you have not wanted to exercise your put option? What's the reason? Now, if you

option? What's the reason? Now, if you go through this thought process, you will realize it's because you saw that there's not much time left. You saw that there's only 7 days to expiration and

there's only 1 cent in exttrinsic value.

That is why you're considering to actually exercise the put option. So now

if you flip the scenario around when you are the put seller, so now you still now you have the short put position. Now you

will realize that if you are the put option buyer, this is the time when you want to exercise your put option where you have very little days to expiration left.

So this is the only time as the put buyer that you are only thinking of exercising. So that means that if there

exercising. So that means that if there is a lot of DTE left and there's still a lot of extrinsic value left, then you're not likely going to exercise this

production.

How do you avoid early assignment? So

there are two methods, right? The first

method is a defensive method. That means

you do not want to let your shortput get in the money. So if you don't want to let your short put get in the money, that's when you will roll out and down once the underlying stock reaches your

strike price. So for example,

strike price. So for example, this is the stock price right now and you may have sold a short put down here.

So you sold one put option at this price and at this point of time as the market gets closer to your strike price. This

is where you want to roll. You want to roll out to a further expiration date and you want to roll down as well as far as you can get. So at this point of time if you were to roll it down you may or

may not get a credit on this roll depending on how far down you want to roll it. But basically, when you do it

roll it. But basically, when you do it this way, there's absolutely no chance for you to get assigned because the only time you will get assigned is if the put is in the money. So, if you never let it

get in the money, then there's no chance of an early assignment. So, if you want to know how to actually roll it, I've already created a video. Uh it's called the shortput rolling master class. You

can go ahead and watch that. I put the link at the top rightand corner of this video. Now, the next is what I call the

video. Now, the next is what I call the extrinsic value preservation method.

Now, the difference between this method and this method is that with the defensive method, you could find yourself rolling to very far out in time, right? Because you do not want it

time, right? Because you do not want it to get in the money at all. So, you

could find that maybe you sold this when there's 45 days to expiration. But then

in 10 days, let's say in 10 days, it starts to touch your strike price. So,

that means you actually have 35 days left. But because you want to use this

left. But because you want to use this defensive method, you want to roll out and down. That means you have to roll to

and down. That means you have to roll to a further expiration date. So now that you're at 35, you may have to roll out to maybe at 60 days, right? Let's say

for example, you roll to 60 days and then within another 10 days it touches your strike again. Then you will have to roll out to an even further expiration date. So with this method, while there's

date. So with this method, while there's zero chance for you to get assigned, the thing is that you may end up with a put option that has a an expiration date that is very far out, right? It could go

to 90, 180, even a few hundred days. So

that is the downside of having this defensive method. Now, with this

defensive method. Now, with this extrinsic value preservation method, you only roll out or roll out and down when there's roughly 21 to 30 days to expiration. So let me just remove all

expiration. So let me just remove all this drawing down here. All right. So

for example, you may have sold the uh put option down here and let's say there's 45 days left to go. So during

this point of time, the market may have just gone, you know, all the way up and maybe have gone down, go up again and then come down. So during all this time,

you do nothing until there's roughly 21 to 30 days left. So let's say you use 21 DTE. So let's say at 21 DTE, you see

DTE. So let's say at 21 DTE, you see that it is now in the money. So now that it's in the money, it's time to roll.

Because remember as we gone through the previous scenarios, the time when the option buyer, the put buyer will consider exercising their put option is only when there's very little days to

expiration left and when there's very little extrinsic value left and there's very little extrinsic value left when the option is actually deep in the money. All right? And there's very

money. All right? And there's very little days to expiration left. So you

want to make sure that this does not happen with your put option position. So

that is why you want to roll it when it's roughly 21 to 30 days. So when it's roughly 21 to 30 days, if it's in the money, you want to see how you can roll it. So if it's just slightly in the

it. So if it's just slightly in the money, you can actually roll out and down, right? You could roll out to a

down, right? You could roll out to a further dates to expiration. Ideally,

you can roll it back to a 45 days and then you roll it somewhere here, right?

It may be still in the money, but that's fine because you know from the previous scenarios, even though it's in the money, there's still some time left in this option, there's still extrinsic value left. There's very low chance that

value left. There's very low chance that you will get assigned. But if you cannot roll it down, then what you can do is just simply just roll back to the same strike price and then get a little bit

of extrinsic value. Right? So at this point of time I have some options that I'm still rolling at the same strike price and each uh time when I roll I cannot roll out and down. I only can roll out. But the good thing is that

roll out. But the good thing is that whenever I roll out I still can get some extrinsic value which reduces the cost basis of this uh short put option which

I put on. So if the delta is less than 0.8 you can roll it around 21 DTE. That

means the price the stock price has not gone really that deep in the money yet.

So at this point of time there is a chance for you to still roll out and down depending on how far out you go. If

you cannot you can roll out. Now what if your delta is more than 0.8? Well if

it's more than 0.8 then this is the time where you might want to roll it at roughly around 30 days to expiration.

And the reason is because uh I had experience where I've had a number of uh put options on individual stocks. Right?

individual stocks have a higher likelier chance of you getting assigned compared to index ETFs. So I have a number of put options, short put options where it's

roughly around 27 DTE, but there's very little extrinsic value left and there's, you know, I think my delta is around 0.9 or more. And then I got exercise, right?

or more. And then I got exercise, right?

I got exercise when there's still 27 days to expiration. So that is why for individual stocks and if you have a delta of more than 0.8, it I suggest that you will roll it out once there's 30 days to expiration left right from 30

you can roll it out to the next expiration cycle normally is roughly around 60 days so when it's 60 days out there's very little chance for you to get assigned as you have seen earlier on

so if you have an index ETF then 21 days to expiration is fine but basically this is the general rule so this is how you can avoid early assignment there's two methods there's no one that is better

than the other it just comes down to you which you feel more comfortable with.

For me, I do not mind if the stock or rather my short put actually goes in the money. So, I always choose for the

money. So, I always choose for the extrinsic value preservation method.

So, when you're trading the short put, there's actually two types of strategy that you can trade, right? The very

first one is the cash secure put, right?

So, the cash secure put basically your intention is to long the underlying shares, right? So for every put option

shares, right? So for every put option that you sell basically you want to get assigned on this put option which means that you're going to get long a 100 shares at the strike price that you

choose. So for this strategy is

choose. So for this strategy is generally more capital intensive and the DTE selection is actually less important right because you don't mind getting assigned right the whole idea of

strategic DTE selection usually comes down to whether you want to get assigned or not at least in my case the way I trade it. So if you don't mind getting

trade it. So if you don't mind getting assigned then you know cash secure put the DT selection is not that important and you can actually leave to expiration because you don't mind getting assigned right it's not like you want to avoid

assignment so that's the cash secure put now the other way to trade the short put is with the naked put so the naked put basically just means that you have no intention to long the underlying shares

right that means you just want to get into the options and get out of the options with no assignment whatsoever so when you trade this naked wood basically It's less capital intensive because

there's no need for you to go long the 100 shares per option. And for this for the naked put DT selection is actually very important right because you want to choose the right DTE that actually gives

you an edge in the long term and also leaving to expiration can lead to early assignment risk and potential margin call right because most of the time chances are that your account size is

not going to be big enough for you to long the 100 shares. So for this video, we're not going to be talking about the cash secure put, but instead we're going to be talking about the naked put. So

the name by itself may sound scary, right? But naked put really just means

right? But naked put really just means that you're trading options without any intention to long the underlying shares.

All right? So this is very important. So

when you get into this naked put, you can have unlimited loss to the point whereby the stock goes to zero. So you

really need to know what you're going to do. So if you want to trade this short

do. So if you want to trade this short put which is basically the naked put on a small account size then there are few things that you really need to take note of right so first thing is that if you

have a small account right chances are that you're going to have a big limitation into the kind of underlying that you can trade right for example if

I were to just do this on the IWM right so IWM is the smallest of the three index ETFs the main ones basically the IWM the SPY as well as the QQQ, right?

There's also the diamonds, but of all of them, the smallest one is IWM, as you can see, is about 205 as of this recording. So, if you were to just put

recording. So, if you were to just put on a short put based on this IWM, you can see that I chose one that is around 30 delta with the 193 strike price, you

can see that straight away the buying power for this is about $2,000. So, what

is this buying power effect? So buying

power effect basically just means the amount that the broker is going to hold for you to put on this trade, right? And

one thing you need to understand is that this buying power is not static. That

means to say it can fluctuate, right?

For example, if after putting it on, if the market becomes very volatile, well, it's possible that your broker can actually increase the buying power effect. That means this can actually go

effect. That means this can actually go all the way to higher than $1,930, right? Maybe this can go to 2,000 plus.

right? Maybe this can go to 2,000 plus.

And this is very important to note because if you're going to trade the nickel put in your account, you need to make sure that your position size is proper. So with the limitation of your

proper. So with the limitation of your uh small account, trading the short put on such index ETFs, right, such kind of underlying that is higher price is going to be a problem, right? As you can see,

$2,000 is going to take a big chunk of your account, right? Assuming your

account size is $5,000. So one thing you can straight away do actually is to turn it into a put spread, right? You can see down here we still have the 193 strike price. But then now we're going to buy a

price. But then now we're going to buy a further out of the money put option which is at 187. So what you have done down here is that you have actually limited the risk on this trade. Right?

So as you can see down here your buying power effect is actually now much lesser. Previously it was about $1,900.

lesser. Previously it was about $1,900.

Now it's $453.

So you can see that just by buying that put option you are able to sort of trade the put strategy right but the problem is that this is a put spread and not

exactly a short put and I understand from some people right because you have reached out to me and say that you specifically want the short put not the put spread mainly because of the two advantages right so for those of you who

are not aware of the advantage of the short put versus the put spread is that there are basically two main advantage right the very first main advantage is that you have the pure theta decay. Pure

theta decay because you only have one short option. Whereas for the put

short option. Whereas for the put spread, there's the friction from the long option, right? Because you have the short option as well as the long option because you're going to buy a further out of the money long put. So when you

have that long put option, the theta decay is not going to be as quick as compared to the short put. And the other advantage is that it's easier to roll even when it's in the money. So one

thing you will find that with a short put even though it's in the money you can actually still roll it right you can roll it out and down because it's just one singular option but what you will

find is that for the put spread most of the time if it's in the money you're going to find that it's actually going to be very difficult for you to roll for a credit right so for example this is

the put spread so you can see down here you have a minus one down here and then plus one down here you have the put spread down here so if the market actually comes down here let's say for

example, it comes closer to where this long put is, chances are this put spread when you roll it, it's going to be for a debit, right? So, if it's for a debit,

debit, right? So, if it's for a debit, chances are that you don't want to roll it because you're going to be actually paying more. Whereas for the short put,

paying more. Whereas for the short put, if you just have this short put alone and same thing, if it goes down, you will find that actually you are able to still roll this for a credit, right? You

can still roll out to a further expiration date and then roll down the strike price as well and try to find one where you can get a credit. So that is why you know quite a number of people have mentioned that yes I understand

that the put spread is much more safer in a sense because you know if the market crashes you still only lose whatever you reach at the start but at the same time they want a short put because they want to get a quicker

profits right so if you talk about quickness in terms of profit short put will be always faster because there's no friction from the long option at the same time it's also easier to roll so this is where a lot of people want to do

this right whenever it's in the money they want to keep rolling out and down until the point where the market eventually recovers and go back up and then there going to be profit on the whole position. So I understand this

whole position. So I understand this point. So what we're going to do is that

point. So what we're going to do is that we're going to try and cater this shortput strategy just for the small account. So the question now becomes how

account. So the question now becomes how do you trade short puts for small accounts? Well, the answer is actually

accounts? Well, the answer is actually pretty simple. And the answer is to

pretty simple. And the answer is to simply find underlyings that are lower price, right? Maybe for example, under

price, right? Maybe for example, under $50. Because remember, when you put on

$50. Because remember, when you put on the short put, you need to identify what is the buying power. Basically, what is the amount that the broker is going to hold for you to put on the trade? So, if

you're going to do it on IWM, for example, like I showed you earlier, you can see there is such a big amount, right? So there's no way for you to put

right? So there's no way for you to put up this uh short put on a small account.

So instead, what you want to do is to straight away find the underlyings that is much cheaper. So here are a few examples, right? So first of all, let me

examples, right? So first of all, let me remind you, please do your own due diligence, right? Don't just take the

diligence, right? Don't just take the list down here and then just put it on your own, right? You need to find out whether this underlying is suitable for you. So it's not a recommendation for

you. So it's not a recommendation for you to trade any of these stocks. I'm

just pointing out some of the underlings that I see that can be suitable in terms of the buying power requirement which you can actually put on your account. So

let's assume you have maybe a $5,000 account. So the very first example will

account. So the very first example will be Palanteer, right? So as you can see, Palanteer as of this recording is around $27. So it's not very expensive. And if

$27. So it's not very expensive. And if

you were to just put on the put option down here. So as you can see I've

down here. So as you can see I've selected the 24 strike which is roughly around 30 deltas. You can see that the buying power is only $240

which is not too bad. So if you have a $5,000 account, you can definitely put on this trade. Or maybe if you even have a smaller account size like $3,000, you can definitely still put on this trade

because you can see that the buying power is not that much. Now, another

example would be Ford Motors, right? So,

the ticker symbol is F. As you can see down here, Ford is even cheaper, right?

At this recording, Ford is only roughly about $9.87.

And the strike price that I chosen is $9. So, again, roughly about 30 deltas.

$9. So, again, roughly about 30 deltas.

And you can see for this, the buying power that you need to put on this trade is only $111, which is not so much, right? So, if you have a small account, definitely you can

put this on. Now, the next one is Fizer.

So ticker symbol PFE as you can see FISA is roughly around $30. So pretty similar to Palanteer and if you were to put on the strike price of 27.5 delta roughly

about 21 then you can get a buying power of roughly $361. Again it's not that much right? All this buying power you

much right? All this buying power you notice is under $500. So it's very simple for you to put on this uh short put if you want to. But of course, do not just put on this short hood just

because you know it's a cheap underlying. You still have to find the

underlying. You still have to find the right setup and have proper risk management which I'm going to share with you in a later slide later on. Now, here

are a few other examples. Now, this is for the index ETF. So, stocks can be a little bit more volatile. So, if you're the kind of person that you know want slightly less volatile underlying, then you can go for the index ETF, right? For

example, one of them is GDX. So, GDX is the Van Go Miners ETF. You can see down here uh using the strike price of 34 you have the buying power of slightly above

$500. You have the GDXJ which is the

$500. You have the GDXJ which is the junior go miners. So same thing as well the strike price of $39. You get you

know the buying power of roughly $535.

And finally SPLG. So SPLG basically is S&P500, right? It's the same as SPY only that

right? It's the same as SPY only that this is much much cheaper, right? As you

can see, this is only about $61. So for

example, if you want to trade S&P 500, but then you know SPY is way too big, you can actually consider this SPLG because if you put on the 58 strike

price, you can see that the buying power is about $580. So definitely much more suitable if you have a small account and if you also want a safer way you know to trade this short puts. So one thing that

you will find is that with some of this underlying the spread can be pretty wide. So as you can see down here the

wide. So as you can see down here the spread is $125 to $1.75. So it's pretty wide. Uh down here as well you see 150

wide. Uh down here as well you see 150 to $25. So this is one thing you need to

to $25. So this is one thing you need to take note of if you were to choose some of this lower price underlying. All

right, so let's get into the actual steps of how do you put on the short put strategy for small account. So step

number one is to build a watch list of low price stocks and index ETFs, you know, preferably under $50 because that's where you are able to have the short put whereby the buying power is,

you know, uh manageable, right?

Basically under $500. Now the second step now that you've already built a watch list of all these low price stocks and index ETFs what you want to do is to go through each of them right go through

each of them and try and find the ones that are in an uptrend right so as you can see down here this is an underlying that is pretty much in an uptrend right so how do you identify an uptrend so basically uptrend will have this

characteristic where is forming this waves right basically it will form higher highs and then higher lows so once you found the underlyings that is in an uptrend. Now, this is where you

get into step number three and you add the indicator that's called the stochastic oscillator, right? So, the

stoastic oscillator basically is an indicator that kind of tells you whether the market is in an overbought or oversold condition. Right? So, as you

oversold condition. Right? So, as you can see down here, I've already attached this uh stoastic oscillator at the bottom down here. So, basically what you'll see is that if this blue line goes above the red line at the top, then

this what is called overbought. But if

it goes below the red line at the bottom, then this is what is called oversold. So what we want to look out

oversold. So what we want to look out for when we are trading the short put is for the oversold signal to come out.

Right? We want to see that the squiggly line is below this red line before we decide to enter into any trade. Right?

So this is where you want to put more odds in your favor. Now that is not to say that after it's oversold that the market is immediately going to bounce up, right? We never know, right? because

up, right? We never know, right? because

oversold can go a little bit more oversold and the market can still continue to go down. What's important

again like I mentioned all the time is that we are basing it off probability and if you were to think about it from a very strategic point of view which is much better for you to enter when the

market is overbought. Do you enter the short put when it's overbought where the market is going up or when the market has already gone down quite a bit and is oversold and there's a likely chance that there can be a bounce. Right? So

most likely you want to enter the short put when it's oversold. So once you have already identified the underlyings that is oversold, you get into stop four.

This is where you also want to identify support levels. Right? So again support

support levels. Right? So again support levels are places where you can see that the prices have bounced off and you can see that maybe there's a chance for the price to go up again. So again, we're

just adding more things into our favor, right? Adding the odds in our favor. So

right? Adding the odds in our favor. So

this way at least every trade that we put on at least there's a greater chance of it working out than it does not. But

that is not to say that you won't have losers. All right? So just remember that

losers. All right? So just remember that losses will come. It's inevitable. You

just have to make sure that when the losses come, you manage them properly.

So once you've identified the support levels, then this is where we get into step number five. And this is where you enter into the short put. Right? So what

we want to do is we want to identify the strike prices that is below the support down here. So let's say for example if

down here. So let's say for example if you know that the support is around $30, right? So let's say the support is at

right? So let's say the support is at $30, then you want to go for the strike prices that is below $30, right? So if

you're a little bit more bullish, then you can probably go for the short strike price that is just below the support.

Right? So, if you go for one that's just below the support, what you're going to find is that you're going to get higher premiums, but then your probability of profit is going to be lower, right? So,

this is always a trade-off. But let's

say you're a little bit more conservative, right? You don't want to

conservative, right? You don't want to go for one that is close to the support level. You want to play it safe. You

level. You want to play it safe. You

want to go for a further out of the money put option. So, in this case, what you will find is that you will have lesser premium, but you're going to have a higher win rate, right? So, this is always a trade-off. So, which one is

better? There's not one that is better.

better? There's not one that is better.

It really all comes down to you. So, you

just need to understand that as long as you place the put option below the support level, then at least you've already stacked the odds in your favor because remember number one, we have the market trending upwards. So, this gives

us an indication that there is a likelihood that the market can still continue to go up, right? And secondly,

we also have the stoastic oscillator that is telling us that it's currently in an oversold condition. So, the market has already sold off quite a bit. That

means it could reach a point whereby you know it's a little bit exhausted to the downside and then it can come back up.

And finally, thirdly, we also have this support level down here. So this support level gives you an added chance that you know if the market actually comes down to this support level again, there's a chance that it could bounce back up. So

with all this in place and you also have the short put that is below this support level, you should be able to find such kind of setups that gives you, you know, pretty high probability of entry. So now

that we've already gone through this last step of entering into the trades, let's get into the most important one, which is step number six. That is the exit tactics. So this is where quite a

exit tactics. So this is where quite a number of people really fumble and panic, especially when the market really crashes, right? So you really need to

crashes, right? So you really need to know what to do, especially with a short put. Remember, right now with a short

put. Remember, right now with a short put, this is a naked put. There is no protection to the downside from a long put option, right? There's no long put, so it's not a put spread. So in this

case, you really need to be very sharp as to how to manage it if your put option is in a loss. So first of all, let's talk about what if this put option is in a profit, right? So if it's in a

profit, it's actually pretty simple, right? This is where a lot of people

right? This is where a lot of people will probably also know how to manage.

So there are a few ways to do this.

Number one, you can just exit at 50% take profit, right? So 50% take profit is basically just half of the credit that you receive. So for example, if you

receive say $2.50 for this credit, what is the takerit of this? Right? Basically, the take profit

this? Right? Basically, the take profit of this will be at 1.25.

So a lot of people do get confused because when you're new to trading, you know, options, especially selling options, you need to understand that what you're doing is that you always sell at a higher price and you want to

buy back at a lower price, right? So if

you sell it at $2.50 50 and you buy back at $1.25, then you're actually in a profit of $1.25. So per option contract, that is

$1.25. So per option contract, that is $125.

But if you see the option price at the point of time is above $2.50. So let's

say for example, it's at $3.50.

So what this is telling you is that your trade is in a loss, right? Because you

sold it at $2.50, but if you were to buy back at $3.50, 50. This is actually going to be a loss of a dollar, which is $100 per option contract. So for us as option sellers, we want to see that the

current price, the option price that is marking for is less than what we sold it for, right? So a 50% take profit is

for, right? So a 50% take profit is basically just half of the credit that you receive up front for selling this option. Now, the other way you can

option. Now, the other way you can manage it is at 21 DTE. So I've shared this in quite a number of my videos already. You can just go ahead to look

already. You can just go ahead to look at some of my videos in my channel. But

21DT basically is a study that the Tasty Trade team has already done that if you were to exit 21DT, in the end, you're going to have, you know, much more superior performance compared to if you

were to just hold all the way to expiration, right? But with that said, I

expiration, right? But with that said, I know that some people do want to have the option of holding to expiration because after all, if the market is above your shopper strike, right?

Imagine it keeps going up. Then why not just capture the whole premium that is given to you at the start, right? This

whole $2.50. So some people have that thinking. So you know if you want to

thinking. So you know if you want to hold to expiration, you can definitely do so as well. But just remember this, any option will only generally go to $0 at expiration. So let's say for example

at expiration. So let's say for example if you put this on roughly at 45 DTE and then let's say about 10 days in 10 days

in that means now it's at 35 DTE. So if

it's at 35 DTS and you see that you've already made let's say maybe about $2 that means to say this 250 has dropped down to 50 right? So, you have already

made $2 on this trade, which is $200 because the market has just gone up, right? But for you to make that

right? But for you to make that remaining 50, you have to wait another 35 days. Does it make sense for you to

35 days. Does it make sense for you to wait 35 days when you've already made, you know, $2 in just 10 days? So, what

you're doing at that point of time is that you're risking the additional $2 you already made uh on the remaining 35 days, right? Just so that you can make

days, right? Just so that you can make this 50 cents. So, most of the time, I wouldn't say that would make sense at all. So you would rather just take it

all. So you would rather just take it off uh rather than risk the whole thing.

So at the end of the day, it's really up to you to decide. So I'm just giving you a guideline over here. Now the next one.

So this is a very important one to understand which is the loss. And a lot of people just do not manage it well.

Right? So one thing you need to really keep in mind and really take note is that losses will come, losses will happen. A lot of people want to get into

happen. A lot of people want to get into trades avoiding this loss, right? So for

example, if you get into a 30 delta short put, so roughly it will be a 70% win rate, right? So you will win 70% of them. But what it also means is that you

them. But what it also means is that you will lose 30% of the time. 30% of the time it will be a loss and the probability already depicts it, right?

You cannot avoid this loss. So when the loss happens, you really need to know how to manage it well and not let this short put really blow up your account because some people, you know, they do not want to take the loss. They hope

that the market will come back up. they

hold on to the trade only to see that the market continue to crash and then they lose a lot much more than what they initially wanted. So how do you define

initially wanted. So how do you define this loss? So the very first thing the

this loss? So the very first thing the most important thing is to understand where your max cut off point is. That

means this is the worst case scenario the maximum loss you can make. So the

maximum loss you want to cap it really is at the initial buying power for the trade. So remember earlier I shared with

trade. So remember earlier I shared with you that whenever you put on the short hood your broker will show you this buying power effect right or buying power reduction depending on you know what is the term that your broker use

but basically it's the amount that the broker holds on to the trade for the for you to put on the trade right so this initial buying power is where you want to cut off the loss now let's say for

example if you put on this short and let's just say that the buying power for this is $250 which means to Okay, if it reaches to a point whereby the market drops so far

down that you see that the open loss for this trade is $250, what you want to do is immediately close out this trade.

Why? Because if you don't do that and the market continues to crash all the way down to zero, then you can lose a lot more money and we don't want that to happen. So that is why this is the worst

happen. So that is why this is the worst case scenario. Once it reaches your

case scenario. Once it reaches your initial buying power, you have to cut it off. Now what if it doesn't reach your

off. Now what if it doesn't reach your initial buying power right? So the good news is that the chances of it reaching the initial buying power is not that high because the broker have already set

aside an amount that they want to hold on from you to a point whereby they think that it's unlikely for the market to get there. That means to say that the market really has to go way down for you

to ever reach this amount. Right? Which

is why the broker actually holds on to this amount. So the chances of you

this amount. So the chances of you reaching this is not that high. So what

do you do then in that case? This is

where you want to exit at 21 DTE the latest. So it could be that you know the

latest. So it could be that you know the market has already gone past your short put right. So this short put down here

put right. So this short put down here is what you call in the money. So if

you're in the money there is always a chance of the early assignment risk.

Right? Early assignment risk just means that your shop put is going to get assigned. You're going to get the 100

assigned. You're going to get the 100 shares. If you don't have the funds for

shares. If you don't have the funds for the 100 shares you're going to get a margin call. So to avoid this or rather

margin call. So to avoid this or rather to reduce the chances of this you want to exit at 21 DTE the latest which means to say there's 21 days left to the

expiration of this option. So why 21 DTE? Well firstly because again back to

DTE? Well firstly because again back to the tasty trade study they have already shown that based on 21 DTE you get much more superior performance including the losses right because you are cutting the

losses at a point whereby it's manageable. But if you were to leave it

manageable. But if you were to leave it all the way to maybe even expiration, the loss could get very big if the market continues to go down. So 21dt you

cut the loss to a minimum. At the same time, you have a reduced chance of getting assigned, right? Because at

21dt, you still have some extrinsic value. So when you have still some

value. So when you have still some extrinsic value in this shortput, the chances of being assigned is not that high. So that is why if you are seeing

high. So that is why if you are seeing that you are loss and then you know it's not at your max loss yet of the initial buying power once it's reach 21 DT exit it. Now there's one more option right

it. Now there's one more option right this is the option that a lot of people want to do and that is to roll out and down your put option right that means

for example if the current put option has maybe about say 25 DTE left so what you want to do is that you roll it out

to a further timeline right so maybe you go to the next 45 DTE so when you extend it and have more time you're going to have more extrinsic value you're going to have the premium as

At the same time, you can bring this strike price down as well. So, you can have a lower strike price and overall for a premium. But the key thing down here is that you only do this if you are

still bullish. Because if the stock is

still bullish. Because if the stock is going to keep crashing even after you roll, no matter how many times you roll down and out, you're still going to get caught, right? It's still going to be a

caught, right? It's still going to be a loss and your loss is going to just only keep increasing and increasing as the market goes down. So, this is only if you still hold a bullish view on the underlying. But if you don't hold a

underlying. But if you don't hold a bullish view on the underlying then basically just exit at 21 DTE. So roll

out and down. So how do you roll this?

So there are two ways you can do this.

The first way is when the short put is breached. So this is the most defensive

breached. So this is the most defensive one. When you roll out and down the

one. When you roll out and down the moment your short put is breached basically you're able to roll it to a further away strike price right because this is time where your extrinsic value

is quite high. So you want to choose a further DTE. So one thing is that if you

further DTE. So one thing is that if you were to roll it when the short put is breached, what you will find is that sometimes you can get to a point whereby the DTE is just too huge. For example,

let's say when you put on this option is 45 DTE and the moment you put it on, let's just say the next day the market has just traded all the way down, right? It

crashed and then it reach your short strike. Now at this point, if you want

strike. Now at this point, if you want to roll out in time, you might have to roll to a much further time, right?

maybe 60 70 DTE on and so on. So now you have gone much further in time which also means that the theta decay is not going to be that high as well because theta generally tends to decay much

quicker as the days to expiration the DTE becomes lesser and lesser and lesser. So 67 is still quite a bit. So

lesser. So 67 is still quite a bit. So

imagine if you really roll it down to this point down here and then all of a sudden you know in the next few days the market goes down again and if the market goes down to the next uh point in time

whereby you roll it to then if you want to roll it now you may have to go for an even further one. So maybe now you have to go to like 90 DTE or something like that. So when you do it this way chances

that. So when you do it this way chances are you may reach a point whereby you have no choice but to stop rolling because the DTE gets a little bit too big. So that's the very first way right?

big. So that's the very first way right?

This is the most defensive way. Now the

second way is at 21 DTE. So that means you don't care what the market is doing, right? As long as the market does not

right? As long as the market does not reach the initial buying power for the trade. That means the max loss cut off

trade. That means the max loss cut off point. If it doesn't reach there, you

point. If it doesn't reach there, you just wait until it's 21 DTE and see where the market is, right? Let's say if the market is somewhere here, then this is where you try and roll it again. So

you roll out and down. So if at this point if the market is really below the short put, then you can actually still roll it down for a credit, right? roll

out and down. But the problem is that you may not roll down as far, right? You

may not be able to get a strike price that is much much lower and it could still be in the money. But on the other side is that if the market at 21dt actually went up, then chances are that

you don't even have to roll at all, right? Or if the market actually comes

right? Or if the market actually comes down to where it's at the money, then you can actually roll for a much much uh better uh strike price much lower at the

same time because it's at 21t. you can

always go back to the 45DT. So this way, you know, your theta decay is still reasonable, right? Compared to if you

reasonable, right? Compared to if you were to roll all the way out to about 90 DT or even 100 plus DT. All right, so these are the six steps to put on the

short put strategy for small accounts.