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How I sell Put Options
I have been selling equity put options for over two years now and my average rate of return is approximately 50%. How is the market treating you? I must admit though, that of late (10/12/05) the market is acting pretty shakey, forcing me into closing several positions at a loss. This is something that I was definately not used to. Nonetheless, my average rate of return is still about 50%.
If you are a newbie to trading options you should go check out some of the free info on yahoo.com finance pages. There is lots of info out there and it will bring you up to speed pretty quickly as I do not delve into the all the fancy option trading stratergies. I concentrate strictly on PUT Selling.
Almost anywhere that you read about Put selling stratergies you will probably hear them say that the profit potential is limited to <15%.....Good thing I did not believe them! Even the couple of books out there that deal strictly with the topic of selling puts portray it as a method to net you a return somewhere in the teens. I know people that dont open a position unless their projected ror is at least 100%. I myself do not open a position unless it will net more than 45%
And that is the beauty of selling put options. You can calculate your exact rate of return before placing the trade and decide if it is worth the risk. After all, this is still investing and it does involve some risk. The advantage of selling puts though is that you win if the stock: goes up, stays flat or even drops a little. Much better odds than the old buy and hold method where the only time you won is if the stocks went up and stayed up.
So, how do I get started? You are probably asking yourself. Well you can go out and read all the books that I recommend elsewhere on this
site and then write your own Excel programs like I did or you can buy some comercially available piece of software to do the same thing.
What I realised though when I was looking, was that theie were no programs out there that concentrated strictly on Put Selling, thats how I
came to write my own. I use two spreadsheets now for my trading: one to keep track of all my positions and margin requirements and account
balances and the other to work out the potential profit margins of trades that I am looking into.
Here is a pic of the excel chart of the rate of return on the stock "BTU" or Peabody Energy.