Selling put options has been a popular options investment strategy for decades. Whether you are looking to purchase shares of quality stocks at a discount or just looking to generate regular income, the Naked Put strategy can be a boon to your portfolio.
With the increase in the number of securities offering weekly options, investors can now generate more income on an annualized basis. There are roughly 400 stocks, indexes and ETFs offering weekly options, and 85% of those securities offer what are called continuous weekly series, which have options available for each week for up to 7 weeks out in time.
Trading weekly options takes some special tactics. Because of the shorter time periods of the trade, both the net credit and the short term return are smaller. Therefore, it is important to have lower transaction costs.
Another tactic is to trade higher priced stocks because the fixed cost of the transaction fees will generally be a smaller percent of the net credit received. It is also advantageous to target stocks with higher volatility, which increases the premium values and, therefore, higher net credits. Examples of the kind of stocks that meet these criteria are:
There are other factors that are important if you get assigned the stock (naked put) or have to buy the stock (covered call). Then it is desirable to have the fundamentals of the company to be worthy of a long term hold. You may want the company to have growing sales, earnings growth, good stock liquidity, and currently trading in an uptrend. You may also want to avoid stocks that have an earnings report between now and expiration so you are not caught in a sharp decline. The pre-set parameters in PowerOptions already have many of these criteria established when using the "Weekly Naked Put Search". In just seconds the entire market is screened using 2 clicks and a list of candidates will be displayed:
If you are not already signed into the site... Log on to PowerOptions
Click the Naked Put tab
Click Search. Here's what you'll see...
As you can see from the search report above there are many opportunities to get 1-2% returns in only 9 days using weekly's for your Naked Puts.
Invariably someone will ask, "But the stock I am interested in, did not appear". Generally it is because that stock did not meet the screening criteria. However, there are 2 approaches to see your favorite covered call stock and the option opportunities:
Click the Naked Put tab and then "Search By Symbol" - Several symbols can be added and the search will produce one ITM and one OTM option for the expiration selected.
Use the Option Chain to view all the options and months available for the symbol of interest. The Option Chain can be accessed by clicking Option Chain under the Naked Put tab.