FFO Options 17: Naked Put Selling

1. FFO Options 17: Naked Put Selling Dr. Scott Brown Stock Options

2. “Naked-Put Selling” • This is a good source of passive income from the sidelines of the stock market. • It works by selling Put Options of stocks you would otherwise buy outright. • Let Me Restate: DO NOT SELL NAKED PUT OPTIONS ON STOCKS THAT YOU DON’T WANT TO POTENTIALLY OWN!

3. How does Naked Put Selling Works? • Pinpoint a stock that you would have no problem buying after you’ve done all your fundamental and technical research. • A screening process might help you to look for a strong stock that meets your requirements • Drill down into OTM Put Option prices of close expiration dates for the stock • Receive premium payments for compromising on buying the stock you look forward to own!

4. WHAT HAPPENS WHEN YOU SELL A NAKED PUT OPTION? • Being a put seller, you are must be VERY “bullish” for the stock on which you sell options. • When you sell a put option contract, you are entering into a binding agreement where you have an obligation to fulfill the terms of the deal (buy the underlying stock at the specified strike price). • A risk “premium” is paid to you for committing to buy the stock. • If you get assigned, you will be forced to buy the stock at the strike price. • If you don’t get assigned, you keep the premium

5. WHEN DON’T WE GET ASSIGNED? • We might not get the shares if At Expiration shares are trading above strike price. • In this scenario you get to keep the premium, reanalyze the situation and even repeat the process for the underlying stocks in exchange of another premium payment. • Naked Put Selling can become either a monthly income strategy, or a long stock strategy.

6. PICKING A DIFFERENT STRIKE PRICE • Whenever you give someone more time for an event to occur, you must charge them more money. • Whenever you give someone less space between current price and exercise price on a given stock on an OTM put, you must charge them more money. • By moving between exercise price and expiration dates, premium collection frequency can be modeled along with long stock expectations.

7. DON’T FOCUS SOLELY ON THE OPTION PREMIUM • Selling put options for the sake of collecting risk premiums is a gambling addiction. • Higher risk premiums are associated with underlying securities with erratic behavior and wild price unpredictable changes, premium collected might not suffice to cover changes if assigned. • Remember: DON’T SELL PUT OPTIONS UNLESS YOU ARE HAPPY TO HAVE THE STOCK IF YOU GET ASSIGNED!!!

8. BASIC REQUIREMENTS • In order to execute naked put selling in your brokerage account, you need to have a margin-type account. • You must also be approved by your brokerage to the options trading level that allows put selling. • Even though some brokerage houses will not allow amateur sellers to sell put options, there is no difference in risk between a put selling strategy and outright buying shares of stock. • TIP: The amount of time you have been in my program constitutes option trading experience!

9. PUT SELLING ON THE DOWNDRAFT • “Kneejerk” downside moves create incredible put-selling opportunities (especially for blue-chip stocks!). • Implied volatility gets blasted upward, making the put option even more expensive. • Most of the stocks recover pretty quickly (or at least don’t fall much farther). • If we get assigned the shares, then we truly got to buy one of our favorite blue chip stocks at an awesome price.

10. Does It Always Work? • There’s no guarantee though, that even if you sell put options on high quality stocks that they won’t go down! All stocks go down at some point. • Even a great option strategy like naked put selling needs to be used with caution, especially in a declining market, because in the end, you can wind up owning shares of stock while they’re still falling in price. • If you sell put options far enough OTM, the price level of the stocks from which you’re assigned could be fantastic.

11. RISK MANAGEMENT • In the case of the put-selling strategy, make sure that you don’t sell too many options. • Don’t sell put options just to receive the premiums unless you are well aware of the risks and are able to watch your position at all times. • Play that position as you would like any other stock you currently have. • Have a stop-loss point and make sure you have a plan.

12. Disclaimer • DISCLAIMER: THE DATA CONTAINED HEREIN IS BELIEVED TO BE RELIABLE BUT CANNOT BE GUARANTEED AS TO RELIABILITY, ACCURACY, OR COMPLETENESS; AND, AS SUCH ARE SUBJECT TO CHANGE WITHOUT NOTICE. WE WILL NOT BE RESPONSIBLE FOR ANYTHING, WHICH MAY RESULT FROM RELIANCE ON THIS DATA OR THE OPINIONS EXPRESSED HERE IN. DISCLOSURE OF RISK: THE RISK OF LOSS IN TRADING FUTURES, FOREX AND OPTIONS CAN BE SUBSTANTIAL; THEREFORE, ONLY GENUINE RISK FUNDS SHOULD BE USED. FUTURES, FOREX AND OPTIONS MAY NOT BE SUITABLE INVESTMENTS FOR ALL INDIVIDUALS, AND INDIVIDUALS SHOULD CAREFULLY CONSIDER THEIR FINANCIAL CONDITION IN DECIDING WHETHER TO TRADE. OPTION TRADERS SHOULD BE AWARE THAT THE EXERCISE OF A LONG OPTION WOULD RESULT IN A FUTURES OR FOREX POSITION.HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO, ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM, IN SPITE OF TRADING LOSSES, ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS, IN GENERAL, OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. PS.  In our opinion, we believe, it may be possible, that heavy smoking and drinking may be hazardous to your health.  If you choose to smoke and drink while trading, The Delano Max Wealth Institute nor Dr. Scott Brown is liable for any damage it may cause.  If you slip and fall on the ice, we're not liable for that either.