1. Objective
Generate consistent monthly income by selling cash-secured puts on high-quality, liquid stocks or ETFs, ideally without assignment — but willing to accept shares if it happens.
2. Account & Capital Requirements
- Cash or margin account with Level 2 options trading approval
- Capital to cover 100 shares per put contract sold
- Willingness to hold stock if assigned (important for risk control)
3. Asset Selection Criteria
Only sell puts on stocks or ETFs you’d be comfortable owning.
Checklist for selecting tickers:
- Price: $30–$150 range (affordable 100-share lots)
- Liquidity: Tight bid/ask spreads, high open interest
- Volatility: Moderate (implied volatility [IV] supports premium collection)
- Fundamentals: Stable, large-cap, dividend-paying companies or ETFs
4. Put Option Selection Rules
Expiration Date:
- Use weekly or monthly options (14–45 days is ideal)
Strike Price Selection:
- Target OTM puts (strike 2–5% below current price)
- Use delta 0.20–0.30 for a good balance between premium and low assignment risk
Premium Target:
- Aim for 0.8%–1.5% of strike per month (10–18% annualized return
5. Trade Management
If Price Stays Above Strike (Ideal Scenario)
- Put expires worthless → keep 100% of premium
- Reassess and repeat the trade with a new expiration
If Price Falls Below Strike (Assignment Risk)
- Be willing to buy the stock at strike price
- Manage assignment in two ways:
- Accept stock and transition to covered calls (if comfortable)
- Roll the put out in time and down in strike to avoid assignment
Rolling Strategy
- Roll before expiration if the put is ITM and you want to avoid assignment
- Roll out and down to a future expiration at a lower strike (ideally for a credit)
6. Position Sizing and Risk Control
- Max 10–20% of total portfolio in any single position
- Only sell puts on companies you want to own
- Diversify across 3–5 tickers to spread risk
- Avoid selling puts before earnings unless volatility premium is very high and you’re fine owning the stock
7. Expected Monthly Income
Assume:
- $10,000 capital per position
- Premium goal = 1% monthly = $100/month
- 3–4 active positions → $300–$400/month = $3,600–$4,800 annually
8. Tax Considerations
- Premiums from put selling are short-term capital gains
- May be more tax-efficient in a Trust Fund or Self-Managed Superfund.
- Keep detailed records of:
- Entry/exit dates
- Strike, expiration, premium
- Assignment events
9. Performance Tracking Template
Strategy Summary Table
| Market Condition | Outcome | Your Action |
|---|---|---|
| Stock rises | Put expires worthless | Keep premium → re-enter |
| Stock stays flat | Put expires worthless | Keep premium → re-enter |
| Stock dips near strike | Premium collected, possibly roll | Decide to roll or accept shares |
| Stock drops below strike | Assigned shares | Accept and hold or manage with calls |
