Is anybody here making money selling uncovered put options?

Question

Any advice to give or special things to know about?

I have been trading stocks and mutual funds for almost a decade. I am starting very small with options, trading only in bluechips, buying calls slightly in the money, and selling puts way out of the money, with a strike at least 20% off the current price, and only selling puts during bull cycles.

Answer 1

For the past several years I am sure a lot of people have been making money selling naked puts. Similarly, in the years leading up to 2000 a lot of people made money selling naked puts. In 2000 and 2001 many, possibly most, of them had losses that equaled of exceeded many years worth of profits.

Advice:

Use naked puts as a fairly small percentage of your portfolio. If you want to use a larger percentage of your portfolio for options learn about different types af spreads and how to control the risks associated with options.

Do not choose options to sell because they offer the highest percentage return. The highest returns come with the highest risk.

Diversify. Do not risk too much on any one underlying security or industry.

Do not sell a naked put on a stock unless you would like to own the stock.

Do not assume you can always rescue a position that has gone bad by rolling the options. You cannot, and attempting to do so can be hazardous to your financial health.

Remember that for most successful option traders, changes in volatility (actual and implied) are at least as important as changes in the price of the underlying. If you do not understand how to incorporate volatility into your option trades, learn more about options.

Money management and risk management are critical.

Before entering any options trade, have a plan as to how you will manage the position. Under what conditions will you close or adjust the position prior to expiration?

Answer 2

You really need to know what your doing before you go down that road. It could cost you a fortune. Covered options are a much better way to go.