In Part 1 of this 3 part pragmatic series on How to Find Great Put Selling Trade Ideas, we're going to start with my #1 trade finding tip:
Create and maintain your own Naked Put Watch List.
(In Part 2, I make the case for being 100% clear on why you want to sell puts in the first place, and in Part 3, we discuss the importance of flexibility and understanding that the stock market is one part math, one part psychology.)
Is a naked put watch list really necessary?
Why go to the trouble of putting together and maintaining a watch list of stocks you might want to sell puts on when conditions warrant, when you can just screen for those conditions in the first place?
A number of reasons actually . . .
I've yet to find a screener that reliably uncovers the kind of attractive put selling trade ideas I'm on the hunt for in the first place.
That's because, inside the Leveraged Investing Club, I'm always scouring the market for what I call "Limited Downside Situations."
Ideally, we're looking for situations where we can identify multiple reasons why a stock is unlikely to trade lower, or lower by much, in the near term.
So we're looking at fundamentals, we're looking at technicals, we're looking at valuation, and we also try to be keenly aware of special situations when those are a factor.
When you combine all that, the only effective screener turns out to be a fully engaged human being.
If you want a great trade idea, and even assuming a screener could uncover a great trade idea, it's only going to give you the qualifying idea for that moment in time.
In contrast, a watch list allows you to monitor a stock over time, giving you advance warning of a potential trade and opening up more attractive opportunities in the process.
With a watch list, you only work with and monitor stocks you already know very well and are confident in.
Inside the Leveraged Investing Club, it's rare that we only trade a single trade on a stock.
Our trades often turn into campaigns, and then multiple campaigns.
Stocks zig and stocks zag, and they often give us multiple opportunities to re-enter put selling trades on them as part of that process.
In late 2016-early 2017, I made a big change to the Limited Downside Letter.
The LDL was my (mostly) weekly personal trade research I provided to Lifetime Members of The Leveraged Investing Club.
Everyone who signs up for The Sleep at Night High Yield Option Income Course when it periodically becomes available gets Lifetime Membership in the Leveraged Investing Club as a free bonus.
And The Club includes a ton of wealth building and income enhancing resources and ongoing perks and support - all for free, with no recurring subscription fees, nothing for members to buy from me ever again, no future sales pitches, no affiliate marketing whoring for other third party services, and so on and so on.
So the way I used to handle the Limited Downside Letter was almost like a that of being a human screener.
Each week I would scour the market in order to identify the most attractive trade idea I could fine and then I would post a full write up inside The Leveraged Investing Club.
These write ups were comprehensive, user friendly, and completely transparent - I shared with Club Members my entire thought process behind the selection porcess and often discussed multiple ways the trade might be set up and managed.
Most of the time, things worked out according to plan and Club Members had a terrific resource that not only gave them a steady stream of great, actionable trade ideas, but it also allowed them to see entire trade selection process up close so they could replicate it on their own.
It was a good system, and it worked.
The biggest drawback had to do with the timing - sort of like the "snapshot in time" drawback that comes from a mechanical screener.
Because these were rather involved posts that might take me several hours to research, write, annotate charts, etc., the best time to put them together was usually over the weekend.
(Clearly I didn't have the concept of weekends down very well.)
But sometimes it wasn't the greatest of systems because the window of opportunity might not stay open for very long.
In fact, every once in a while we'd have these weird spells where I'd identify a terrific set up on Friday after the market closed, do a full write up over the weekend, and then, the following Monday, the stock in question would gap higher and our chance was gone.
It validated the selection process, of course, but it didn't do us any good if we never had a chance to get in the trade in the first place.
To prevent a repeat of that - and to make sure we have fewer missed opportunities as well - I've now turned the single trade idea Limited Downside Letter into the Limited Downside Radar where we're continually monitoring multiple stocks all at the same time.
An Official Watch List, if you will.
On the surface, it may seem like more work, but in a weird way it's not.
That's because any time you increase your own effectiveness, it's a wise use of your time.
Yes, I may spend more time keeping tabs on stocks that are currently out of attractive put selling range, but at the same time, if any of these stocks I'm watching starts coming into range, I've already got it in my sites.
So a little more work upstream, but more opportunities, and better ones, downstream.
I'll close this articel by sharing a few tips I've learned when transitioning from single-trade search to multiple-stock Watch List or Radar format:
First, even though you may not be arbitrarily screening for potential trade ideas, you still need to define your own criteria for what constitutes an attractive opportunity or a great set up.
Inside the Club, as I mentioned earlier, we use a combination of fundamentals, technicals, valuation, and, when fitting, we may also incorporate special situations.
Second, don't feel like you have to build a massive watch list.
Ironically, having a large watch list defeats the purpose of having a watch list in the first place.
If something is too big or too complicated to keep tabs on, then guess what? You're not going to be keeping very good tabs on it.
So if you're trying to watch too many stocks, in the end you really may not be watching any of them, or at lest not closely enough to do much good.
It's better to go with fewer names that you're on a first name basis with so that you know exactly where you'd like to see the stock trade in order for you to pull the trigger.
Third, you can also take your time constructing that list.
Case in point - during the transition, it took me close to two months to build up to a list of about a dozen stocks that I was actively monitoring.
But it works.
At least it does for us inside the Club - because once we're in a trade, we try to keep it going for as long as possible.
KO - 125 shares
KMI - 100 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares
Open Market Purchase Price: $20,071.83
Less Booked Option Income: $16,341.71
Tot. Discount: 81.42%
Adj. Div. Yield: 19.59%