How to sell put options for monthly income

now today we're talking about a strategy

that I love and this is a foot selling

strategy that I employ instead of buying

stock now as you guys know I'm a long

time dividend investor I don't often do

swing trades and I definitely am NOT a

day trader so to speak I sometimes put

on option trades that are held for a

very very short interval but more

normally I'm trading over a couple week

period so I've put on a trade and then I

let that trade kind of stay within a

range and that's where I make most of my

money as an option premium seller so

today what I'm going to do is I'm going

to show you the details of this

particular trade now it's gonna be on

Etsy if for those of you who don't know

I have an Etsy store it's one of the

reasons why I love trading that

particular stock because I like to buy

things that I use it's one of my

personal rules of investing invest in

what we use so if you guys don't know my

personal rules of investing you should

definitely check them out I've got a

video specifically on that it's on the

home page if you're new to the channel

you should definitely check out my rules

because it's kind of what allowed me to

build my wealth over time and become a

40 year old retiree

all right everyone welcome back to

drawbridge finance my name is Levi woods

as you know I'm not a professional

investor I don't work in the finance

industry and this is an opinion channel

about money

it's happy Monday it's amazing we had

that huge sell-off last week I'm making

this video way before market open I'm

still in Tokyo so I'm it's daytime here

the market doesn't open till 11:30

tonight for me and I'm you know chomping

at the bit to get some trading in I

don't know if there's going to be any

trades being placed at all we're looking

at the futures market we'll be looking

at the pre market but prior to opening

and I hope that there's volatility

compression and that the VIX comes down

to a level where we can actually put on

a trade this week right now today what

I'm going to do is I'm going to talk

through a trade they kind of went a

little bit south on me and and how I

managed it and how it was able to

recover and become a profitable trade

because I think that this is important

especially in a time like this where

there is a lot of volatility and this

this trade shows it off very very well

we're gonna look at a one-year chart on

Etsy and I'll show you my mindset

because I trade this pretty regularly I

want to make a option premium trade you

know ideally every single month and now

that's not realistic and somebody asked

me today if there was no fees for option

trading would I trade them every day

well I do trade options very very

frequently I usually put on anywhere

between 20 and 30 option trades a month

so that's more than daily but and I

still pay fees I'm Canadian we have

ridiculously high fees comparatively to

my American counterparts so if you guys

are in America and you're thinking about

getting in option trades if you have a

large enough account to actually make it

worthwhile the fact that you have no

option fees for trading them or very

very low makes them ideal especially in

the strategy that I'm showing today now

I said before I'm an Etsy holder I have

an Etsy store but I own the stock

outright and what I like to do is I like

to look for entry points where I can add

to my current position because by by

owning the stock

I am bullish on the stock I believe that

the company is good and how

a good value and it is going to increase

over time so when I'm looking to pick up

stock I want to buy it at an appropriate

level I want to buy it low so I can sell

it high later I mean that's kind of the

whole idea with with stock trading in

general so if we look back at the one

year chart I'll show you a couple trades

that we're leading up to the specific

trade that we're looking at I made a

little trade in here this was in July

and I held it for about three weeks and

we made a small profit there and that

was pretty nice now if you guys are

interested in looking at any of these

you can go back and look on my patreon

page if you go to post there's a brand

new search bar so you can just put an

etsy right here now those let's pull up

any articles or posts that I've written

about Etsy which is amazing or you can

do it by keyword so if you just go to

these tags you could look through here

and find the one on Etsy you can see

I've got 24 posts on Etsy over the last

three years I've just typed in the

search bar Etsy and showing posts with

Etsy in it and we're just gonna scroll

down through and take a look as I showed

you on the chart I had done a trade I

had done a trade in July that I held for

a little bit longer and then I had this

quick little trade in October held it

literally for two days I put on the

position it was bullish the stock just

drove straight up for two days and I was

able to close the position so here's the

September 20th closing I'd see options

17% gained that's a hundred and twelve

percent annually and then October 8th I

put on new ad sees options I gave a few

details about what the trade was just

like I said stock market is down so it's

a good day to sell puts short-term play

make a couple of bucks eighty-six

percent chance of the stock staying

above $50 if we look at the chart back

on October 8th at that 55 dollar mark it

was trading just under that 20-day

moving average and I wanted to get it

for even better price so we had had a

couple of down days and we were

expecting a few up days after that you

know this is just like how the cycles of

a stock move that one we closed for

quite a nice gain it was a 10 or 50

percent annual gain but basically we

sold originally for 40 cents and then we

bought back for 15 cents in just two

days so that's a nice little profit the

one I really want to talk about is this

on October 18th trading kind of down and

then up and down and it was just trading

in this in this trough I was expecting a

little bit of a rally to up until it

earnings I thought well the earnings are

coming out in two weeks and I said that

rate in the post opening selling a short

November fifteenth fifty puts fifty

dollars is what I want to pay for the

stock that's how much I feel you know

this is my personal threshold of what I

want to buy the stock at it's trading a

55 I would like to pay 50 you know

that's exactly what we would all want is

be able to buy the stock for less than

it's currently trading wouldn't that be

the right thought process so that's what

I want so the stock price that day was

5876 the earnings are expected November

6th and I want to have this trade closed

before then this is a quick bull trade

as I am expecting upside movement next

week so right there looking at that

chart we had this down day and that we

were gonna just charge up here I was

going to be able to collect that premium

the same way I just done on October 10th

where the the market was just gonna

drive up and I was gonna make a nice

little tidy profit in a really short

timeframe I did not want to play through

earnings now my mistake with this trade

was actually that I was wrong if we look

at the post I said that earnings were

November 6 now I don't know if they

changed the earning days or if I just

looked at a bad announcement but this is

why everybody should always do their own

research on every trade you know he

should never be trapped like following

blindly anyone's trades but this was a

blatant mistake the earnings were

actually October 30th and I ended up

getting caught in that and the earnings

came out and the stock dropped down and

I was unprepared for that I was

expecting to close the trade prior to

earnings which I completely missed you

know my bad it happens so let's look at

what I was looking at that day now I was

looking to sell the put and I was going

to collect a dollar ten US dollars got a

little trading log here and we're just

gonna go over to that and I'll show you

the first line so this is a a put option

profits so the date was October 18th the

stock price was 58 76 and I sold so I'm

sure one option the option was a dollar

so I collected a dollar 10 on that day

28 days to expiration sell to open puts

November 15th $50 so these are the

November 15th 50 puts that will expire

28 days from October 18th if the stock

is above 50 bucks those options will

expire worthless I sold them for a

dollar 10 on October 18th so the point

of this is that I'm hoping the stock

will rise up further than the current

level of 5876 this option price will

decrease because of that upward movement

and I will be able to buy it back and I

am you know under trade like this I

might expect to buy it back for 85 cents

or 90 cents and and make a 20 cents

difference now each options contract

controls a hundred shares so this dollar

ten is a hundred and ten dollars so when

I say a dollar ten I actually mean a

hundred and ten and when I buy back for

85 or 90 then I would be buying back for

85 or 90 dollars and collect that

difference in a couple of days so that

was my intent now what actually happened

with the stock was as I said before I

got caught by earnings the earnings came

out and the stock dropped it gapped down

which is the absolute worst thing that

could happen in my position my position

makes money when the stock goes up not

when it goes down and it went down far

enough that it went past my strike price

my my strike price was here at $50 and

the the stock was all of a sudden

trading it like $44 and I kind of was

like oh shoot that's not what I wanted

to happen my option is going to expire

on November 15th and I have to do

something about it so I watch the stock

and it's kind of waffling for these

couple of days it's not doing much so on

November 5th I make a trade and what I

do is I just roll the option out I take

my November 15th expiry I buy it back

for a loss and then I sell the December

50 put let's just look at what that

looks like so the stock was trading at

44 98 buy to roll puts November 15 51

contract to negate my original sold

contract so now I've got 0 after this

transaction but it cost me 5 dollars and

12 cents to do that I originally sold it

for a dollar 10 buying it back for 5 12


a major loss if I stopped there and

there's 11 days left in the trade and

this is exactly why I'm closing it when

the option becomes in the money there's

risk of assignment so I want to give

myself more time so that there's less

risk of assignment so that's what I did

I'm rolling out one month in time so I

sold to roll put December 20th for $50

so the only thing has changed is I've

given myself an extra 35 days to be

correct about my assumption and for that

role that I was able to sell it sell the

December contract for five dollars and

72 cents so I'm short one December

collected 572 now the difference is 60

cents the difference between 512 and 572

now I have 46 days for it to go back up

about 50 bucks so here we are November

5th and the stock continues to drive

lower again not what I wanted to see at

all but we start to see a rally buyers

start to realize that there's some value

in the stock so they start to put out

their money and buy some stock here it

comes up and now we're getting into this

range where we're coming up on Christmas

there's only 20-something days left in

the trade there was 21 days left in the

trade which is kind of my optimum the

three Fridays before option expiration

that's what I want to get out of that

trade 21 days left so right on the money

that's when I did it November 29th I did

the exact same thing I'm going to buy

back the option for a loss and then I'm

going to sell the option again so this

time there wasn't as much drop the stock

was trading for only a dollar 50 lower

the original trade that I sold for 572

this December I was actually able to buy

back for 657 only a 75 cents difference

still driving this lower but because I'm

rolling out in time and my assumption is

that the stock is worth more than $50

then I believe that the stock is going

to continue to go up

that was why I put this position on in

the first place I want to buy the stock

for 50 bucks and it's okay if I do I'm

just collecting a little bit of credit

as I go along so in this case I'm buying

back the December 20th I'm rolling

though to January 17th to give myself

some extra time in this case 28 more

days and I collect the difference

between the

the purchase price of buying the the

puts and the selling price of selling

the new January puts and I collect

another 30 cents not a huge credit but

still another 30 bucks into my coffers

and again my assumption is that the

stock is going to come up again the

stock drove down not very happy about

this at all

but we continued to start seeing a

little bit of a rise and when we get

down to the end of December December

31st it's the end of the year there's

not a lot of trading in that week

usually and I'm going to roll out in

time so this time what I did was I

decided to give myself much more time

instead of putting on this trade every

single month and saying okay I'm making

the transaction and I've got this in the

money put and I'm just concerned about

it I'm giving myself more duration more

time for Etsy stock to recover so that's

what he did December 31st the stock was

trading a 44 30 actually an increase of

almost a dollar from the prior trade did

the same trade again I bought back that

the January puts and this time I sold

the March puts by selling further out in

time I was able to collect way more

credit so I bought back a position for

541 that I had originally sold for 688

so there was a bit of profit there and

then I sold the new put in March for $7

and 36 cents this time collecting credit

again so I've collected credit four

times on this trade a dollar ten sixty

cents 30 cents and down with dollar 95

and now I've got 80 days for that stock

to come back up into that $50 or above

range let's look at the chart and what

happened well this year as we know was

having an incredible upswing everything

was doing extremely well so the stock

finally started to get some traction and

we went up and up and up 51 and a half

and then it started to flatten out and

come back down I continued to hold

because I want to I want to sell and and

get the most premium that I can and

ultimately I've got time left at this

point we're at the beginning of February

and I believe that the stock is going to

go up in value higher it should be over

$55 I mean it's been trading in an

upward range for a very long time and I

trade this every month so I know so here

it goes

now it starts to really break out and we

go up there's

a month left in my option contract and

the stock broke the 55 dollar mark still

wasn't quite and a small enough premium

for me to buy out for a large profit and

again I don't care about this I'm just

gonna keep doing it over and over these

are small positions for me and I can

just roll them each and every month and

collect your credit if I need to I was

hopeful it was going to continue to go

up and he didn't it went down a little

bit went back down to $50 and then the

earnings came out and again I'm just

trading rate through earnings at this

point I don't really care about it

because if I buy for 50 bucks I'm

totally happy buying it and of course

earnings came out and the stock drop

jumped way up to 57 which is way more

appropriate range where it's trading now

$57 now the the reason I wanted to make

this particular video is because these

are stocks that are performing extremely

well even when the market was tanking

last week the Etsy earnings and this gap

up actually happened in the middle of

the week last week so there are stocks

out there that are having up moves that

are not actually going down in this down

market so finally I got to close out the

trade for a debit so if we just take a

look the stock was trading at 5781

February 28th which was just last Friday

I finally closed the last contract that

I paid 75 cents so now the total if we

look at this collected a dollar ten

sixty cents 30 cents a dollar 95 and

then debit of seventy five cents so a

total credit of three dollars and 20

cents so now I want to just calculate

the profit so we can look at the annual

return now I'll run this through it for

you guys so that you understand how to

calculate annual profit which is

calculated by the premium received minus

the fees now I said before I still have

large fees in Canada so I have to count

those in that equals my profit so here's

an example 320 was the total credit hour

times by a hundred that's because it's

one contract controls 100 shares

so that's $320 and then minus and we'll

say in this one there was a total of

eight trades and each trade costs a

dollar twenty-five I think that's

probably pretty average for a lot of

people down in the states we look at how

many trades there were there was one two

three four five six seven eight trades

dollar twenty-five times eight

and then we'll get our profit so 320

minus 10 equals 310 in profit now to

calculate that a percentage-wise we can

tell how much percentage gain it's just

the profit divided by the margin

required and then times by a hundred

that gives you your calculated return on

investment in percentage so in this case

it would be three hundred and ten

dollars now the initial margin that's

the amount of cash that is required to

have you need to have in your account to

put on this trade was seven hundred and

fifty dollars and then times five

hundred so three ten divided by seven

fifty times by a hundred and it's the

calculated return on investment is 41.3%

I also like to calculate it annually so

that's easy enough to calculate it

annually we take the return on

investment we divide it by the number of

days held and then we times it by 365 so

41.3% and then divided by one hundred

and thirty-four days that's October

eighteenth to February 28th then we

times that by 365 and we get this total

a hundred and twelve percent return so

that's the calculation so that if we did

this trade every single day for the

entire year which we're not expecting to

there's always going to be gaps we're

always looking for the opportunity then

we close when the numbers are right and

then we wait until the next opportunity

so we have to play a multitude of of

different stocks and different options

in order to be able to make money off of

a strategy like this but if we did it

every day our theoretical return would

be a hundred and twelve percent on a

trade like this now this is super

complex and I know this there's going to

be terminology in this video that was

way over people's heads but I assure you

when you start to think about the buying

stock and the risk that you're taking

buying a stock compared to selling a put

and the risk that you're taking by

selling the put there is a mathematical

advantage to selling the put by itself

now there's a disadvantage of course if

the stock goes up too much then we're

missing out on profits now I have a

chart that I've been working on for

quite a long time this spreadsheet and

it's actually available to my March

patrons so anybody that is a patron for

on my $7 or above tier on patreon is

available to download this chart I'm

just doing some final tweaks on it today

just to make sure it's absolute

glitch-free before I post it but anybody

that is a patron for March will be able

to download it in on my patreon page on

the post page and it actually says zero

on the digital files but I once I upload

that it will be available to everyone

and if you don't want to become a patron

that's cool as well you can go and

purchase any of my spreadsheets on my

Etsy store and that's why we're doing @c

today because I actually use that T I

love it it's a great product a great

website this is not a sponsored video by

the way it's just I'm a shareholder in

them and I love it anyways I think

that's it for today I hope that what you

guys learned something I'm you know

about option trading and that it makes

it a little bit more clear if you have

any questions please leave them below

check out some of my other videos so we

can all get rich together thanks so much

for watching and see you very soon