A Practical Guide to Sell Put
For standard, physically settled 100-share stock and ETF puts. Our suggested starting rules, not an industry standard. Shortput has not backtested this parameter set; returns are not guaranteed.
Entry: underlying first, contract second
| Check | Default action |
|---|---|
| Underlying | Prefer liquid broad-market ETFs and large-cap stocks you would own. Skip leveraged/inverse ETFs and stocks facing major binary events. Avoid earnings in short-cycle trades; a one-year stock put requires accepting several earnings cycles. |
| Volatility | IVR ≥20 and IVP ≥50% to enter the shortlist. High IV does not waive the event check. Do not force a trade that fails the filter. |
| Expiration | Short-cycle: prefer 30–45 DTE; longer-term: around one year (365 DTE) is also an option. Accept the longer capital commitment and purchase obligation. Do not extend the term just for a larger total premium. |
| Strike | For premium income, start with absolute Delta of 0.20–0.30. For share ownership, set an acceptable purchase price first. Do not raise it just for more premium. |
| Quotes | Check valid two-sided quotes and the bid–ask spread. Use limit orders; mid is not a promised fill. |
| Position size | Size for the shares you would own if all puts were assigned—not the contracts that initial margin lets you open. Set a loss budget and an assignment funding plan before entry. |
Management: when the condition hits, act
Premium income is the default path; planned share ownership is the exception below. DTE means time remaining, not time since entry—even for a one-year put. Risk exits override profit targets.
| Situation | Default action |
|---|---|
| Reached P50 | Buy to close and take the profit. Especially when expiration is still far away. A one-year put can also be closed early; do not wait just to collect the rest. |
| ≤21 DTE, below P50 | For premium income, prefer closing this trade. Do not automatically roll just to wait for a recovery. |
| ≤7 DTE, ≥80% of premium earned | Prefer taking profit over collecting every last dollar. Holding to expiration must meet the next row’s conditions. |
| Planning to hold to expiration | Only if you want the shares, can fund assignment and still accept the position size. A planned share buyer can hold; otherwise close beforehand. Assignment can also occur before expiration. |
| Thesis fails, loss budget hit or funding is inadequate | Follow the reduction or exit plan. Do not wait for P50. Do not average down or treat a roll as erasing a loss. A gap can prevent an exit at the budgeted price. |
P50 measures profit against the original premium, not margin ROI. Collect $200 and buy back for $100: $100 profit, or P50. Buy back for $20: $180 profit, or P90, before costs and taxes. Until filled, this is an estimate—check executable quotes.
Do not risk the whole contract for the last $20
At P90 in this example, only $20 remains to earn, while downside exposure and assignment obligations remain. Earning 90% does not mean only 10% of the risk remains.
Near expiration and near the strike, Gamma can be high. Sudden drops, after-hours moves and other outliers / tail risks can wipe out many small wins.
Default: if you can close at a reasonable cost, do not wait for expiration just to collect the last few dollars.