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In this step-by-step guide, we used statistics (standard deviation, probability of worthless), the options pricing (minimum bid price), corporate actions (earnings), fundamental (PE on strike), and more unique features to find the optimal puts to sell in minutes.
Sell puts 3 standard deviations under current price
Selling out-the-money puts is a strategy that allows you to have a bullish outlook on stocks while increasing your probability of profit. Even if the trade goes against you - you will be assigned the stock, and you've bought it at a lower price - meaning you have a margin of safety. The downside is that the profit potential is limited.
In this article, we will use the standard deviation on strike filter to help us find puts to sell. There are many features in Samurai to help you find the best put to sell, so feel free to contact us or look at the knowledge base to learn about more features.
In this article, we will use the standard deviation on strike filter to help us find puts to sell. There are many features in Samurai to help you find the best put to sell, so feel free to contact us or look at the knowledge base to learn about more features.
The goal of the article to give you an example of how to build a scan, step-by-step, so you'll be able to build other scans that fit your need.
How to build the scan:
1. Pick the naked put strategy.
2. Add the standard deviation on strike filter from the 'add filters' window.
3. Initial filters setup:
Change bid-ask spread to 'any'.
Change moneyness to 'below stock price'
Change Annualized Return to above 12.5%.
Change Bid to above 50 cents to see only trades that have sufficient premium.
Add 'earning date' and set it to 'after expiration' to not to deal with earnings trades.
Set the Std.Dev on strike filter to 'more than 3 std.dev below current price'.
Run scan.
4. fine-tune: After we get the initial results, we can add more filters or adjust the levels of our filters to fine-tune our results (since you will run this scan in different market conditions, you will get different results and might need to fine-tune them).
In this case, I'd ask min probability of profit (prob of worthless filter) to be above 80%.
I'd also add 'PE on Strike' and ask it to be less than 20. It means that if the option will be assigned, the stock PE will be 20 or lower - It is cheap for this market condition.
The goal is to filter out trades that don't fit me personally. I give a lot of weight to the company fundamental, so this is the way I do it. Other ways:
- If you want statistical edge you can increase the prob of worthless and limit the risk (for example add 'strike' filter to limit the max loss).
- If you are a technical trader you can add moving average on strike or RSI (coming soon).
- You can add your own watchlist with the 'include symbols' filter. Or filter by sector.
- And many more features.
5. Sorting: Sort by PE on strike (or prob of worthless/annualized return) and check if each trade fits your need. Sorting will help you save time.
6. Analyze and trade. You can click the symbol to see the details page including IV analysis, PL, and more.
(In that case, I saw some good trades in MS, HOG, and CAT)
7. Save: you can save this scan for future use.
Summary and bringing it all together
In this step-by-step guide, we used statistics (standard deviation, probability of worthless), the options pricing (minimum bid price), corporate actions (earnings), fundamental (PE on strike), and more unique features to find the optimal puts to sell in minutes.
The goal is to find trades that fit your style and you feel comfortable with, so feel free to iterate and change it and you can contact us to help you do so.
Learning how to create your own scans means you will never run out of trade ideas and you won't need to rely on others for your trading.
Read more:
- A blog post about the edge in selling options.
- How to scan from a custom watchlist or one symbol
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