Equity markets like broad market indices and single stocks tend to move in price inversely of their options. That is,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 highon the stock via the .The Study
- Sold 30 Put (45 DTE)
- Compared results to only selling puts after stock down 5% or more in 10 trading days
- 2005 to present
- SPY, AAPL, MSFT, JNJ, XOM, JPM
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.