Is Selling Put Options Safe? A Practical Guide for Retail Traders

Selling puts is one of the most powerful income-generating tools in options trading. Used correctly, it can provide steady, reliable returns. Misused, it can become the financial "weapon of mass destruction" Warren Buffett famously warned about.

This article walks through what selling puts really is, how to use it safely, and the biggest pitfalls that wipe out unprepared traders.

The Truth About Whether Selling Puts Is "Safe"

The honest answer: Selling put options can be safe. But only if you use strict rules around cash management and stock selection.

Here's the simple framework:

✅ Sell puts on stocks you'd be happy to own.

✅ Only sell puts you can fully cash-secure.

✅ Avoid margin while you're learning.

✅ Size positions so an assignment doesn't disrupt your portfolio.

To illustrate this, consider the example from the transcript using AT&T (T). The trader observed the stock climbing above its 50-day and 200-day moving averages and decided to sell the April 16 $30 put for about $1.01 in premium.

That is a regular, conservative short put. Ten contracts require $30,000 in security, and the trader had the cash on hand. If assigned, they'd own 1,000 shares and begin selling covered calls while collecting dividends.

That's what safe put-selling looks like.

When Selling Puts Becomes Dangerous

Selling puts turns dangerous the moment you introduce leverage.

The same trader with $311,000 in cash could legally sell 394 contracts of the same put, exposing themselves to a potential $1.18 million assignment.

That is how people blow up their accounts.

The risk isn't selling puts. The risk is using margin to sell more puts than you can afford to lose.

You can avoid nearly every horror story in options trading by sticking to one rule:
If the stock is assigned at the strike price, you must be able to pay for it in cash.

Can You Lose Money Selling Put Options?

Yes. Absolutely.

When you sell a put, you take on the risk of the stock falling below your strike price. If AT&T fell from $30 to $20, a short $30 put seller is still obligated to buy shares at $30.

That's a $10 loss per share-partially reduced by the premium collected.

The good news is that experienced put sellers manage this risk in three ways:

⚡ They only choose stocks they're comfortable owning long-term.

⚡ They size positions so a drawdown is manageable.

⚡ They use adjustment strategies when trades move against them.

Selling puts is not a risk-free income strategy. But when it's used intentionally, it becomes one of the most reliable tools in options trading.

Why Traders Sell Put Options

Despite the risks, selling puts remains a favorite strategy for many traders, especially those generating consistent income.

Here's why:

How Beginners Should Approach Selling Puts

If your account is small, you might feel pressure to use margin. Don't. Instead:

✅ Choose lower-priced stocks

✅ Sell strikes far below the current price

✅ Keep your position sizes small until you build consistency

You can always scale up later. You only get one account.

Final Thoughts

Selling put options is an excellent strategy, but only when you follow disciplined rules. Cash-secure your trades. Pick stocks you want to own. Avoid oversized positions. And never let margin tempt you into selling more than you can afford.

Traders who treat selling puts as controlled income thrive. Traders who treat it like a shortcut blow up.

Options trading is a game you want to play forever. Use put-selling wisely, and you'll stay in the game long enough to see it work.