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Market Measures

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Selling Puts in Beat Up Stocks

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.

Selling puts is a primary premium selling strategy for tastytraders, and doing so in stocks that have been beat up recently is a favorite contrarian play for Tom. Selling puts in beat up stocks is a strategy that allows traders to both sell premium and generate long deltas in a stock that may be a little oversold.

The study in this segment looks at selling at-the-money puts in stocks that have considerably large market capitalization after they have witnessed a selloff greater than 5%. We found that the strategy is successful in all environments, even when there was no selloff, but that the strategy was even more successful when we sell puts into weakness in the underlying.

Tom remarked that he does not care so much about the fact that some think that “blue chip” stocks do not go on extended selloffs as much as he cares about taking the contrarian play of selling puts into a down move.

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