How to sell puts for income, step by step

Step 1: pick something you would be happy to own

A sold put obliges you to buy 100 shares at the strike if the stock finishes below it. So start with the question of whether you would hold those shares at that price. Broad index funds such as QQQ and SPY are the usual first choice because they rarely gap through a strike the way single stocks and leveraged funds do.

Rich premium is a warning sign, not a bargain. The tickers that pay the most are the ones most likely to fall hard, and in our own history a single assignment on a leveraged fund erased more than the winners before it combined.

Step 2: choose the strike and the expiry

The strike sets your odds. A put around 25 delta, roughly a one-in-four chance of finishing in the money, is a common middle ground. Lower delta pays less and wins more often; higher delta pays more and gets assigned more often.

For expiry, 30 to 45 days out is the usual range. In our replays the premium collected there paid for the risk taken. Contracts a week or two from expiry did not show the same edge.

Step 3: size it by the worst case

Set aside the full cost of the shares (strike times 100) for every contract. Then ask what happens if the stock gaps down 15 percent: could you hold the shares, and would that loss change how you live?

Count the maximum loss per underlying factor, not per ticker. QQQ and TQQQ are one Nasdaq bet. Two contracts is not small if each one ties up a large share of your account.

Step 4: decide what you will do before you sell

Write down three rules. When you will take profit (many sellers close at half the premium collected and sell again). When you will close early to cut a loss. And whether you want the shares if assigned, in which case the next step is covered calls, the wheel.

Rules made while a position is open tend to bend. Rules made before it exists tend to hold.

What the numbers say

On real quotes, the put leg earned about +0.8% a trade on collateral across roughly 1,100 replayed trades. The win rate was around 86%, and the average loss was about twice the average win. That is a thin edge with a lumpy shape: many small wins and occasional large losses.

The edge exists because options usually imply more movement than the stock delivers, the variance risk premium. It comes and goes. In some weeks it vanished entirely, which is why one good month proves little.

Test your own idea before you trade it

Vesper replays a put-selling rule against years of real option quotes, losing years included, then lets you follow it on paper and see how it behaves at expiry pace. Start there, not with real money.