Selling Weekly Options For Income Slides

Selling
Weekly Options for Income

with Michael Shulman

Selling Weekly Options for Income
Welcome to
Ø Wrestle control of your portfolio from the market
Ø Learn about a new income generation strategy
ØLearn to trade weekly options

ØSell weekly put options to generate an
extra pay day every week
High returns on your capital

ØSelling weekly options is a

powerful strategy

ØThey are a repeatable source of
generating weekly cash

Ø You will learn:

Ø How to selection a weekly
option
Ø When to sell
Ø How to execute the trade
Ø Manage the trade
Ø And finally, close the trade
with extra cash in your
account


ØWalk through how
to execute a
trade

ØRoll and Recover
Strategy
ØKnow how to work with your broker

ØLearn how to read your broker’s option screen

ØYou’ll learn about my personal

strategy for selling options
ØLearn how to make extra cash

each week
ØGain control over your portfolio

Selling Weekly Options vs. Buying

Ø Selling options flips the risk to the buyer – you want the
option to expire worthless, this is the dream scenario!

Ø Selling options flips the risk to the buyer – you want the option
to expire worthless, this is the dream scenario!

Ø Monthly options expire at the close of the market on the
third Friday of each month


Ø Selling options flips the risk to the buyer – you want the option
to expire worthless, this is the dream scenario!
Ø Monthly options expire at the close of the market on the third
Friday of each month
Ø Weekly options are short-‐term contracts, introduced on

Thursday and expiring 8 days later the following Friday
Advantages to Selling Weekly Put Options


RISK MANAGEMENT
Ø Preserve capital
Ø Market exposure is only days vs. months
Ø Minimize impact of outside events

Advantages of Selling Weekly Options

TIME DECAY
Time decay in an option contract works on
the behalf of the seller
Advantages of Selling Weekly Options

FLEXIBILITY
Ability to capitalize on a short-‐term plays

CONSISTENCY
The ability to trade weekly creates the
opportunity to generate profits on a steady
basis
Fewer Commissions:

Ø Typical weekly position will expire worthless =
only one commission
Ø In the case of a buy back and the put costs $0.05 or
less, many online brokers are commission free
Downside to Selling Weekly Options

The short time frame and rapid time decay may force
you to stay in the position longer than the week
On the upside…
Later in the webinar I’ll show you how to recover when a
trade goes against you
Ø More than 250 stocks and ETFs have weekly options

Ø Find weekly options inside the options chains

Ø Universe of weekly options is growing every week – check
CBOE http://www.cboe.com

Ø Some mega cap sticks like Apple, Google and

Bank of America show options listed week in
advance, this is not the norm

ØMany more opportunities when, on the third week

of the month the monthly option becomes a weekly
ØSelling a put is a contract entitling the buyer to

sell shares at a fixed price on or before a specific
date
ØEach option contract controls 100 shares of the
stock

Ø This program is about selling cash

secured puts, not naked puts



Ø ‘Cash’ here means collateral to

support the trade –you are not
buying an option or spending
capital



Ø ‘Cash’ here means collateral to

support the trade –you are not
buying an option or spending
capital

Ø You must maintain enough capital

to support the position

1. Sell 1 contract at $30 strike price à maintain $3,000 in

account -‐-‐(1 [# of contracts] x 30 [strike price] x 100
[shares per contract] = 3,000)
2. Sell 3 contracts at $30 strike price à maintain $9,000 in
account (3 [# of contracts] x 30 [strike price] x 100 [shares
per contract] = 9,000)
3. Money is dedicated to the trade until the contract
expires worthless or you buy back the position.
Ø You are not buying an option

contract in this scenario
ØNot spending capital – it is to
support the position
ØCapital to support a position is
very different from owning
shares

Factors Impacting Which Day to Sell a Weekly Put

§ Stock price movement
§ Earnings
§ News
§ Premium
Factors to Determine Right Type of Option Contracts

ØVolume
ØVolume
ØOpen Interest (Open Contracts)
ØVolume
ØOpen Interest (Open Contracts)
ØDaily Volume
Volume directly impacts the price for the put -‐-‐
Willing to pay

vs
Willing to accept
The Bid/Ask Spread

Ø Bid: what someone is willing to pay for an option

Ø Ask: the current asking price by other sellers
ØLower volume usually means a wider spread,
making it hard to get into the position
Volume Factors: Bid, Ask, and Current Open Contract Volume

Ø The premium is the cash you collect when you sell a weekly
put option
put option
Ø Look for rich premiums
put option
Ø Due to the shorter time to expiration, weekly options
tend to carry less premium
put option
Ø Due to the shorter time to expiration, weekly options tend
to carry less premium
Ø Generate a 25% return on your capital by netting .5%
per week for 50 weeks on your trades
put option
Ø Due to the shorter time to expiration, weekly options tend
to carry less premium
Ø Generate a 25% return on your capital by netting .5% per
week for 50 weeks on your trades
Ø Goal = see the put expire worthless
§ Share price
is $39

§ Sell a put
with the
strike price
‘out of the
money’ or
less than
share price
When Do You Sell?
Ø Premium changes significantly depending on when you

sell
Ø Selling early (8 days prior to expiration) may get you twice
the premium

When Do You Sell?
ØCheck:
§ Major market events
§ Major company events
§ Charts
Ø Wednesday’s – optimal combination of premium
and limited time in the market, reducing risk

Enter the Trade

Ø Action: Sell to Open!
Ø Number of Contracts
Ø Limit Order
Limit Orders
Ø Premiums are lower on weekly options than monthly options

Ø What seems like a small loss can be significant

Ø A dime loss on a weekly put can mean a 25% loss in value
When You Sell a Weekly Put Option-‐-‐
Check Weekly Options Each Market Day!

Setting Trade Alerts

Ø Most online brokers offer an alert system
Ø Alerts can be sent via email, text, or to your smart
phone or tablet
Ø Set the alert up when you execute your trade
Ø Trigger when stock price is within 2% - 4% of
being ‘in the money’
When Your Stock Moves (Late Thursday or Friday)

Stock Moves Up
• Buy back with small profit – for peace of mind
• Cost for peace of mind is the commission

Stock Moves Against You

• Buy back with small profit, break even or small loss
• Roll on Friday or sooner if you want
Be Alert!!!! Monitor Your Position

Friday is key for put sellers:

If the stock is well above the strike price, you have
little to do:

1. Ride out the position through expiration

2. Buy back the put if you can still hit your target
profit

Friday is key for put sellers:

Ø If the put is underwater (strike above share

price):

1. Check movement of stock, sector & market

by 11:00 a.m.

2. Decide to roll the position or ride it out

Ø If stock sells off à roll the

position to avoid a loss

OR

Ø Accept the assignment of stock…
you will own 100 shares of the
stock per contract
Ø Rolling allows you to avoid being put the shares

§ Take a loss on the first put you sold

§ Generate more cash than the loss through a
second sale
Example of Rolling a Trade:

1. Monday: the price of GM stock was $38.95

2. Trade: Sell Contracts of GM Nov, Week 4 38 Puts

3. Premium received: $.35 per share (100 shares x $.35 x 3)=$105

4. Thursday: GM stock is trading at $37.95 and the GM Nov, Week
4 38 Put is selling for $.65

Roll Trade (one action):

1. Buy (back) GM Nov, Week 4 38 puts for $.65 per share or -$195

2. Sell GM, Dec, Week 1 38 puts for $.75 per share or +$225
Net Cash in Hand after the Roll +$135

Friday at close, GM stock is trading at $39.25… and your new
contract expires worthless... You keep +$135
Guidelines for Executing a Rolled Trade

One Trade: Execute the roll as one trade

Short Time: Roll out the shortest possible time period

Pre-‐Emptive Roll: Roll before the option is ‘in-‐the-‐
money’, this may lower cost of buying back
Keep these factors in mind when setting goals:
Ø How many weeks a year you can sell weekly puts
Ø How much capital you are committing to this
strategy

Ø What impact commission may have on your profits

Ø How many times you believe you will need to

extend or roll a position, reducing your return on
that position.

Guidelines for establishing income goal:

Ø Put positions on forty times a year

Ø Do not not allocate all your capital to this strategy

Ø Do not put all your capital in support of one

position

Ø Assume 1-to-2 out of ten positions will need to be
extended a week
Ø Keep income goals realistic… 15% - 25%
annually

annually

Ø Assume you will generate 20% return on

your capital

annually

Ø Assume you will generate 20% return on your

capital

Other Factors…

Ø Number of times you will roll a position – 1-2

times for every 10 trades

annually
Ø Assume you will generate 20% return on your
capital
Other Factors…
Ø Number of times you will roll a position – 1-2
times for every 10 trades
Ø Measure return based on annualized rate

Whole Foods Market (WFM) – Put Expires Worthless

• Price of the Whole Foods Market (WFM) stock is $55.50

• Trade: Sell a $55 put for $1.25

• Premium Received: $1.25 Per share (100 shares x 1.25) +$125

• Earnings are great and the stock goes up to 60.50 and stays
there

Whole Foods Market (WFM) – Put Expires Worthless

• Put expires worthless

• The return is 2.27% -‐-‐ this is calculated by:

• 125 (cash from selling put) /5,500 (capital to support stock)
= .0227 x 100 = 2.27%
.0227 x 50 (# of trades per year) = 1.14 x 100 =
114% = Annualized Return

Whole Foods Market (WFM) – Buy Back



• Premium Received: $1.25 Per share (100 shares x 1.25) + $125

• Stock goes up to 60.50 and stays there

Whole Foods Market (WFM) – Buy Back

• Set target buy back of $.50 or $50 a contract/good until
canceled order

• The return is 1.5% -‐-‐ this is calculated by:

• 125 (cash from selling put) - 50 (cost of buy back) /5,000
(capital to support stock) = .015 x 100 = 1.5% return

.015 x 50 (# of trades per year) = .75 x 100 =
75% = Annualized Return

Whole Foods Market (WFM) – Rolling the Position



• Premium Received: $1.25 Per share (100 shares x 1.25) +$125

• Earnings come out and stock sells off to $52.50 on Friday,
you decide to roll the position

Roll Trade (one action):

1. Buy (back) the puts for $1.40 per share or -$140

2. Sell the same $50 puts for the following Friday at $1.70 per
share or +$170
Net Cash in Hand after the Roll +$155

125 (original sell of puts) – 140 (buy back) + 170 (new contract-‐
sell of 2nd puts) = $155

• Friday at close, WFM stock is trading at $65.50… and your
new contract expires worthless... You keep +$155

Recap:

Ø Letting a put expire worthless means no second commission
Ø Many brokers offer commission free trades when you buy

back a put worth a nickel or less
Ø Be sure to put the commissions into any calculations you

make
Trading Scenarios:

Ø Trade can expire worthless
Ø Set a buy back target price for more control

Ø ‘Roll and Recover’ the position

Knowing the possible outcome will help you
anticipate the right action to take
Ideal Stocks for Selling Weekly Puts

Consider These Variables:

Ø Higher than average volatility in the underling shares

Ø Lots and lots of volume, 1-‐to-‐2 penny spread

Ø No potential events for 2-‐to-‐3 weeks

Some Stocks to Consider

Ø QCOR, GILD, GM, F, WFM, TSO, BX, CREE,
SNDK
Ø AAPL, AMZN mini-‐puts
Ø Dependent on proximity of stock price to

strike price
Time for Your Questions!

with Michael Shulman

My 60 Options Income Blueprint !
“60 Day Test Drive”
Ê My Complete 5 Module Options Income Blueprint Education Course
Ê My Weekly Options Trading Alerts which tell you which options to sell
and how to maximize your income on them
Ê Monthly Options Trading Alerts so you can add even more income to
your pocket
Ê And, 3 additional bonus reports and 3 bonus training videos.
Ê You get everything for 60 Days on my No Hassle Test Drive for just $79
My 60 Options Income Blueprint !
“60 Day Test Drive”
http://tradersreserve.com/landing/lunch/
Spread Trades Selling Options
Advantages Disadvantages
Ê Leverage Ê Can not roll into another

spread
Ê Risk Reduction
Ê Can be difficult to
understand
Spread Trade Sample
GM Stock price at $38.50
Spread Trade for One Contract
Sell GM Nov, Week 4, 38 Put .39 $39
Buy GM Nov, Week 4, 36.50 Put -‐.07 -‐$7
Net Credit $39
Capital Maintenance on the spread $150
Capital Maintenance on GM Nov, Week 4 38 Put $3,800
What If You Get Greedy and
Sell 4 Contracts
Ê With 4 spread contracts you collect $128
Ê Capital Maintenance on 4 contracts $600
Ê Capital Maintenance on One Side $15,200
But… if GM price on Friday, November 29th goes to $37
Can not ROLL…have to take a loss

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Selling

Weekly Options for Income

ØLearn to trade weekly options

High returns on your capital

ØSelling weekly options is a

Ø You will learn:

ØKnow how to work with your broker

ØYou’ll learn about my personal

ØLearn how to make extra cash

ØGain control over your portfolio

Selling Weekly Options vs. Buying

Selling Weekly Options vs. Buying

Selling Weekly Options vs. Buying

Ø Weekly options are short-­‐term contracts, introduced on

Advantages to Selling Weekly Put Options

Advantages to Selling Weekly Put Options

Ø Market exposure is only days vs. months

Ø Minimize impact of outside events

Advantages to Selling Weekly Put Options

Advantages to Selling Weekly Put Options

Advantages to Selling Weekly Put Options

Downside to Selling Weekly Options

Ø More than 250 stocks and ETFs have weekly options

Ø Some mega cap sticks like Apple, Google and

ØMany more opportunities when, on the third week

ØSelling a put is a contract entitling the buyer to

Ø This program is about selling cash

Ø This program is about selling cash

Ø ‘Cash’ here means collateral to

Ø This program is about selling cash

Ø ‘Cash’ here means collateral to

Ø You must maintain enough capital

1. Sell 1 contract at $30 strike price à maintain $3,000 in

Ø You are not buying an option

Factors Impacting Which Day to Sell a Weekly Put

Factors to Determine Right Type of Option Contracts

Factors to Determine Right Type of Option Contracts

Factors to Determine Right Type of Option Contracts

Factors to Determine Right Type of Option Contracts

Volume directly impacts the price for the put -­‐-­‐

Willing to pay

The Bid/Ask Spread

Volume Factors: Bid, Ask, and Current Open Contract Volume

Ø Premium changes signiﬁcantly depending on when you

Enter the Trade

When You Sell a Weekly Put Option-­‐-­‐

Check Weekly Options Each Market Day!

Setting Trade Alerts

When Your Stock Moves (Late Thursday or Friday)

Stock Moves Against You

Friday is key for put sellers:

1. Ride out the position through expiration

Ø If the put is underwater (strike above share

1. Check movement of stock, sector & market

2. Decide to roll the position or ride it out

Ø If stock sells oﬀ à roll the

Ø Rolling allows you to avoid being put the shares

Example of Rolling a Trade:

1. Monday: the price of GM stock was $38.95

2. Trade: Sell Contracts of GM Nov, Week 4 38 Puts

3. Premium received: $.35 per share (100 shares x $.35 x 3)=$105

Roll Trade (one action):

Ø Weekly options are short-‐term contracts, introduced on

Volume directly impacts the price for the put -‐-‐

When You Sell a Weekly Put Option-‐-‐

• The return is 2.27% -‐-‐ this is calculated by:

• The return is 1.5% -‐-‐ this is calculated by:

Ø No potential events for 2-‐to-‐3 weeks

Ø AAPL, AMZN mini-‐puts