How Do You Sell a Put Option? A Complete Guide for Traders

Options trading can seem complex at first, but one of the most straightforward and consistent strategies is selling put options. For many traders, this strategy provides a steady stream of income while also giving the opportunity to buy stocks at a discount. If you've ever wondered how to sell a put option, this guide will break down the process step by step.

What Is a Put Option?

A put option is a financial contract that gives the buyer the right, but not the obligation, to sell 100 shares of a stock at a predetermined price (called the strike price) before a set expiration date. When you sell (or "write") a put option, you take the opposite side of that trade. You are agreeing to potentially buy those shares if the stock drops below the strike price.

In return, you immediately receive a premium (cash income) from the buyer. This is why many traders use put selling as a consistent income-generating strategy.

Why Selling Put Options Works

The strategy appeals to both conservative and income-focused investors because:

⚡ Consistent Premiums: You earn money upfront when you sell the contract.

⚡ Discounted Entry to Stocks: If assigned, you buy the stock at a lower price than it's currently trading.

⚡ High Probability of Success: Often, put options expire worthless, meaning you keep the premium without ever having to buy the stock.

For example, if a stock is trading at $170 and you sell a put option with a $160 strike price, you may collect around $1.79 per share ($179 total for one contract). If the stock stays above $160 through expiration, you keep that entire premium as profit.

Step 1: Choose the Right Stock

The most crucial aspect of selling put options is selecting the right stock. Since you may be required to buy it, you want to choose a company you'd be happy owning at a lower price. Well-established companies with strong fundamentals (such as Apple, Google, or Amazon) are common choices.

💡 Pro Tip: Avoid selling puts on stocks you don't want to own. If assigned, you'll be stuck with a position you don't believe in.

Step 2: Identify Support Levels

When deciding how to sell a put option effectively, consider technical support levels. Support is a price area where the stock tends to hold and bounce back. Selling a put option just below support increases the odds that the stock will not fall further, making it less likely you'll be assigned.

We're more of a fundamentally minded group here, but one of my favorite technical indicators to look at is the RSI. When it is at or below 30, it's a sign that the stock may be oversold. Pair this with a positive fundamental view, and you increase the probability of success.

For example, if Apple stock has recently bounced off $169 multiple times and RSI is sitting at 28, selling a put with a $160 strike builds in additional cushion.

Step 3: Select Expiration Dates

One key decision is whether to sell weekly or monthly puts:

⚡ Weekly Expirations: Provide more frequent income but require more monitoring.

⚡ Monthly Expirations: Offer a balance of income and time efficiency, making them ideal for traders seeking consistent passive income.

Many experienced traders favor expirations around 28-30 days out, striking a balance between premium received and risk exposure.

Step 4: Analyze the Option Chain

When you open the option chain for your chosen stock, you'll want to:

1. Look at the strike price below the current stock price.
2. Review the bid-ask spread (tighter spreads mean more liquid options).
3. Check the Delta: A Delta of 0.20 means there's about a 20% chance of being assigned. In other words, you'll win about 4 out of 5 trades.

For example, selling a $160 put on Apple may have a Delta of 0.21 and pay $179 in premium. That means:

• There is a 79% chance the option expires worthless (you keep the money).
• 21% chance you're assigned, but then you buy Apple at $160 instead of $170.

Step 5: Execute the Trade

Once you select the strike and expiration:

• Enter a sell-to-open put order.
• Aim to execute near the midpoint between the bid and ask.
• Confirm you have enough capital to potentially buy 100 shares per contract (this is called cash-secured put selling).

For instance, selling one $22 put option on a stock like Palantir requires $2,200 in your account, because that's the cost of buying 100 shares if assigned.

Step 6: Managing the Position

How do you sell a put option and manage it correctly? The good news is, this is a relatively simple strategy.

At expiration, one of two things will happen:

1. Stock Stays Above Strike Price - The option expires worthless, and you keep the premium.
2. Stock Drops Below Strike Price - You are assigned 100 shares at the strike price. Since you wanted to own the stock anyway, this isn't a loss. You can then hold the shares, wait for them to recover, or start selling covered calls to generate additional income.

Some traders also choose to buy back the put early if they've already captured most of the premium before expiration.

Risk and Reward in Put Selling

While selling puts is considered a conservative strategy compared to buying options, it still has risks:

• Downside Risk: If the stock collapses, you must still buy it at the strike price.
• Capital Requirement: You need enough cash to cover potential assignments.
• Opportunity Cost: Your money is tied up as collateral, which could limit other investments.

However, the upside is significant. Earning even 2% per month in consistent income can compound into substantial returns over time. Many traders use this as a retirement income strategy.

Advanced Tips for Selling Puts

• Stick to Highly Liquid Stocks: Avoid thinly traded names with wide bid-ask spreads.
• Use Lower Delta Strikes: Around 0.20 Delta provides a strong balance of safety and income.
• Practice Weekly Options First: Short-term contracts give you more practice, though monthly options are more efficient long term.
• Consider Market Conditions: In bull markets, selling puts can be even more profitable as stocks often rise, leaving puts to expire worthless.

Example: Conservative Weekly Trade

Imagine you sell a one-week put option on a $22 stock with a $21 strike price. You receive $30 in premium. That's about 1.3% in a single week. If repeated four weeks in a row, you could make around 5%-6% in a month. Even if one contract results in assignment, you're buying the stock at a discount.

Why This Strategy Fits Traders of All Levels

Whether you're new to options trading or have years of experience, selling puts can be one of the safest ways to generate income. It allows you to ease into ownership of quality companies while being paid to wait. Unlike more complex option spreads, this approach is simple, repeatable, and effective.

Final Thoughts: How Do You Sell a Put Option Successfully?

The key is preparation and discipline. Always:

⚡ Pick stocks you want to own.

⚡ Choose strike prices below support levels.

⚡ Select expirations that fit your trading style.

⚡ Manage positions patiently, knowing that assignment is not failure-it's part of the plan.

Selling put options can be an excellent strategy for building consistent income and acquiring stocks at a discount. By focusing on fundamentals, support levels, and proper risk management, you can make put selling one of the cornerstones of your trading strategy.