Options can be a great way to mitigate risk and boost your portfolio income. Let’s review the best way to selling weekly put options for income.
Guide to Selling Weekly Put Options for Income (Boost Your Returns!)
Let’s get into a guide to help you sell weekly put options to earn more income. I recently brought you the best stocks for covered call writing. I’ll highlight why selling weekly put options is the best weekly option trading strategy to learn. Writing puts for income offers the best combination of risk / reward.
With the goal of living off dividends, I can increase my income and reinvestable capital by successfully writing put options for income.
I use Personal Capital to monitor and manage my cash flow activity. I need to continue to find ways to increase my income into perpetuity.
What are put options?
Put options are financial contracts giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time frame.
Put options enable investors to reduce risk by locking in a predefined contract at a specified price to sell.
If you are long puts, these options contracts are often used as hedges for investors to ensure they can sell a stock at a specified price if the stock goes down.
On the contrary… if you are short (selling) puts, you get to buy the stock if it crosses below the strike price. If it doesn’t cross below the strike price, you get to keep the option premium (as income).
With my Robinhood dividend portfolio, I use options since they are completely commission-free on the Robinhood platform. If you join Robinhood, we both get a FREE share of stock.
Check out our Robinhood section for all the latest and greatest updates regarding our dividend portfolio.
What are weekly put options?
Weekly put options are financial contracts that expire in weekly increments. Weekly put options are shorter than regular options (typically monthly or quarterly). Through weekly options you can target / hone in on a more specific date and time period. One consideration with weekly option strategies for income is that they are less expensive, but can be riskier.
People within the industry call weekly options as “Weeklys.” Weekly options are identical to regular options, except they expire every week, typically on Fridays at market close.
Why would you want to consider a weekly option strategy for income?
There are some benefits to consider when deploying a weekly option trading strategy:
- Low premium embedded in the option price because there is not much time value
- Ability to target specific events for a calendar date such as earnings announcements, economic reports or other key events that might help you sell high volatility or buy low volatility
Weekly options strategies for income can be a great way to boost your overall return profile within your dividend growth portfolio. You can potentially mitigate some risk as well. To figure out the best weekly option trading strategy, you must always consider those aforementioned points.
What if I said that you can boost your investment returns by selling weekly put options for income? Let’s review how….
How to Sell Weekly Puts for Income
Investopedia has a good analysis on why you want to consider selling options. Based on a CME study of expiring and exercised options covering a period of three years (1997, 1998 and 1999), an average of 76.5% of all options held to expiration at the Chicago Mercantile Exchange expired worthless (out of the money). You can read more why options sellers have an advantage.
So, how can you sell weekly put options for income effectively? Let’s first discuss writing puts for income.
Writing puts for income has significant advantages due to the following:
- Put writing generates income because the writer of any option contract receives the premium while the buyer obtains the option rights.
- If timed correctly, a put-writing strategy can generate profits for the seller as long as he or she is not forced to buy shares of the underlying stock. Thus, one of the major risks the put-seller faces is the possibility of the stock price falling below the strike price, forcing the put-seller to buy shares at the strike price.
If you are solely writing puts for income, you should point to the underlying stock price to either hold steady or increase. You simply want to stock to stay at it’s current value through expiration of the options contract.
Writing put options is a great mechanism if you like a stock, but you are not sure if it will go up. The best part is that you don’t have to be 100% right to make money.
Okay, so how do weekly options fit into the picture?
So, you want to sell weekly puts for income with stocks that have certain characteristics that fit both the attractive characteristics on the short put side AND the weekly duration.
As an investor and not a speculator, I want to find stocks that have high implied volatility (relative to historical volatility) but no significant event such as earnings release or an economic report on the calendar. You can use a tool like Gurufocus to monitor news on your favorite stocks.
You must plan effectively with your weekly options trading strategies. I like to follow a routine checklist to ensure I am following my criteria that fits my risk tolerance. Also, by having a checklist, I ensure that I am fitting the best risk-adjusted opportunities that have a high probability of success.
Writing Puts for Income Checklist
To have an effective options trading strategy for writing puts for income, I want to hit on the following checklist. Follow this 5 step checklist for selling weekly put options for income and you will be in great shape.
Am I overall bullish on the stock long-term? Am I confident that the overall market will not have an extreme selloff?
With this point, I need to be sure that I love the fundamentals of the stock long-term. In case the stock does fall below the strike price found in our weekly put option contract, I need to be comfortable owning the stock at that specific price for the long haul. Of course, I would only want to own a stock that I think is going to only increase in value over time.
Additionally, I need to consider if the broader market will face an extreme selloff in between the time that I execute the put option sale and expiration. I usually like to look at FINVIZ futures to do so. An extreme selloff in the broader market can ruin a lot of opportunities even with some of the most undervalued stocks.
Does the stock feature the appropriate fundamentals as featured in our undervalued stock criteria?
We have created a set of undervalued dividend stock guidelines to follow. I need to be sure that the stock that I am ultimately writing weekly put options for income meets this criteria. If you want a visualization of this stock criteria, review our screening for undervalued stocks infographic.
If you need a stock screener, I suggest you try using the FINVIZ stock screener for finding stocks that fit your own criteria.
Does the company have any material events happening between now and expiration of the weekly put option?
With this set of criteria, I need to make sure that the stock does not have an upcoming event that could result in an extreme movement in the stock price. These material events typically include earnings releases, economic reports, monthly sales reports, drug release results, etc.
I like to sometimes write weekly puts on stocks that I already own since I know the stock very well and understand the fluctuations on a daily/weekly basis. However, if you don’t know the stock, take a look at the charts to understand how the stock reacts to certain headline events.
Am I happy owning the stock at the exercise price?
You should only write put options on stocks that you are comfortable and happy owning. Remember, if the stock decreases below the exercise price, you can exercise to buy the stock at the exercise price. Back to my point number 2 above, if I like a stock at current prices, I will like it even if it decreases in value.
If you are uncomfortable buying shares of a stock below a certain price than what it is at today, you should not be writing a put option for income on that particular stock.
Does the stock have strong support at a level above the exercise price?
This is where my technical analysis comes into play. I am a fundamental driven investor. However, sometimes you have to evaluate the charts to make a sound decision. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. With technical analysis, there is resistance as well. Resistance is the opposite of support. Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
If there is strong support in between the current price and the exercise price, I will gladly write a put option for income. To find out the support levels, I like to use Stockcharts or Nasdaq. They have free screeners where you type in the stock ticker and should be able to view the chart on a daily basis. For Nasdaq, I like going into the Stock Consultant section that will show the various levels of support and resistance.
If I can answer yes to all of these questions, I will go ahead and write a weekly put option for income.
Selling Weekly Put Options for Income Conclusion
Selling weekly put options for income is a sound strategy for boosting your investment returns. Overall, writing weekly put options are one of my favorite risk-adjusted ways to earn outstanding returns in the stock market.
Trading weekly options for income is a proven way to boost income if done correctly. The key component to writing weekly puts for income is having a checklist and a predefined method for consistent success.
If you pair this with your dividend growth portfolio, the benefits can be outstanding.
Selling put options for income is the best weekly option trading strategy for me. I am not a trader. I am a fundamental investor. Any chance I get to boost income or potentially own a stock for attractive risk-adjusted rates… I will take it.
This weekly option trading strategy is comfortable for my risk tolerance. Consider these other option strategies for income.
Are you going to try selling weekly put options for income? Please let us know if you have any questions below. We’d love to hear from you.
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I understand the concept , but for some reason its does not work in my head . seem like there is to many ways , time periods to sell . Pulse I do have some reservation .