“The mistake most investors make is treating put selling like a lottery ticket rather than an investment commitment.”
Karim Rahemtulla, Co-Founder, Monument Traders Alliance
Dear Reader,
Most investors get stuck in the same trap.
They wait for a pullback that takes too long, miss the move, and then chase it higher out of FOMO. Either they buy too late and overpay, or they wait forever and never buy at all.
Put selling is the way out of that trap.
Here is how it works.
When you sell a put option, you are making a specific agreement with the market. You are saying: I am willing to buy this stock at a price I choose, below where it is trading today.
In exchange for that commitment, the market pays you cash upfront. That cash is yours to keep regardless of what happens.
How a Trade Becomes Profitable
Most people assume you have to wait until expiration to see the outcome. You do not. You can close the trade at any time by buying the put back in the open market.
If the stock holds steady or moves higher after you sell the put, the premium you collected decays in value. You can buy it back for less than you sold it for and pocket the difference as profit. That is exactly what happened in the trade below.
If the stock falls sharply and the put moves against you, you can close it for a loss rather than wait for assignment. You are never locked in.
There are three possible outcomes when you sell a put. First: the stock stays above your strike, the put expires worthless, and you keep the full premium. Second: the stock moves in your favor and you close early for a partial profit.
Third: the stock falls to your strike and you get assigned shares at the price you chose.
Two of those three outcomes put cash in your pocket without you owning a single share.
The biggest risk is not the market. It is leverage. If you sell puts using more margin than you can cover, a sharp move can turn a manageable situation into a serious problem.
The mistake most investors make is treating put selling like a lottery ticket rather than an investment commitment. If you sell a put, you need to be willing and able to own the shares at that price. That discipline is what separates consistent winners from the ones who blow up.
Here is a real example.
Last year, I liked Marvell Technologies(MRVL) as a company, but not at the price it was trading. I wanted to own it cheaper. So instead of buying shares, I sold puts below the market price.
My War Room members sold puts for between $1.02 and $1.06 per contract. That premium was theirs to keep the moment the trade was placed.
The thesis was simple. Either MRVL would fall to my strike price, and I would get the shares at the discount I wanted, or it would stay above that level, and I would keep the cash. Both outcomes were acceptable.
Thirty-five days later, members bought the puts back for 42 cents, keeping a profit of 60 cents to 64 cents. That is a 63% return on premium in just over a month.
Marvell never had to fall. The trade worked simply because time passed and the stock stayed above the strike price. That is the part most people never consider when they first learn about put selling.
Options are “time-decaying assets.”
Next week, I will explain exactly how I found that trade and the specific criteria I used to select it. For now, the mechanics are what matter.
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Two Ways I Use Put Selling
The first is as an anti-chasing strategy.
Everyone has done it. A stock you have been watching for months finally starts to move, you buy it because you are afraid it will get away, and then it pulls back immediately.
Chasing is one of the most expensive habits in investing.
Put selling removes the emotional decision entirely. Instead of chasing, you set the price you are willing to pay and collect cash while you wait.
If the stock comes to you, great. If it does not, you kept the premium and you look for the next opportunity.
The second is as an investment strategy. A cheaper way into stocks you actually want to own.
Most investors see put selling as a trading strategy. I see it differently. When I find a company I want to own for the long term, I use put selling to get in at a discount.
Instead of buying shares at the current price, I sell puts at a strike price 20% to 30% below the market. The premium I collect lowers my effective cost even further.
If I never get assigned, I have been paid for my patience. If I do get assigned, I own a quality company at a price well below what everyone else paid.
That is not a consolation prize. That is the plan.
YOUR ACTION PLAN
Put selling works because of a structural advantage. Option sellers collect premium that is almost always priced slightly above the actual risk.
Over time, that edge compounds. It is why market makers and institutional desks sell far more options than they buy.
The retail investor rarely gets to be on that side of the trade. Put selling is one of the cleanest ways to get there.
Done correctly, it is one of the most consistent strategies I have used across decades of investing. It turns patience into income and discipline into returns.
Next week, I will walk you through exactly how I apply this: the specific criteria I use, how I choose strike prices, and what my track record looks like on this strategy.
You’ll want to read that one.Want more content like this?
FUN FACT FRIDAY
The world’s first documented “options trader” was a broke philosopher (Thales) who used his weather-prediction skills and a small upfront payment to corner the olive-press market – and made a fortune without ever owning a single olive tree or press outright.
He essentially turned a smart bet into leveraged upside with limited risk, proving that options (and selling the other side of them) have been a clever way to play uncertainty for over 2,600 years!
Modern option selling (especially on exchanges) is much safer today thanks to clearinghouses and standardization, but the core idea – collecting premium for taking on obligation – hasn’t changed since those ancient Greek days.
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