Market Measures

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Selling Puts During Selloffs

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Equity markets like broad market indices and single stocks tend to move in price inversely of their options. That is, option values tend to increase as stocks fall in price.

This relationship presents an interesting opportunity: selling puts as stocks fall in price. This strategy would take advantage of buying a stock that has a reduced price while selling the high Implied Volatility (IV) on the stock via the short naked option.

The Study The Results

Selling puts in all environments has historically produced profits, but all of the products that we looked at in this study actually witnessed better returns when waiting for selloffs to sell puts with the exception of Apple (AAPL). Success rates and average profits both increased when puts were sold in the midst of the price coming off in the underlying.

Check out the full segment above for greater details.

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