Selling Cash Secured Puts on Webull: A Beginner's Guide to Options Trading

Selling cash secured puts on Webull can be a great way to earn extra income, but it requires a solid understanding of options trading.

To start, you'll need to fund your Webull account with at least $25, which is the minimum requirement for trading options. This is a small price to pay for the potential returns.

Webull offers a range of options contracts with various strike prices and expiration dates, giving you flexibility in your trades.

The cash secured put is a type of options contract that gives the buyer the right, but not the obligation, to sell a specific asset at a specified price.

To open and fund an account on Webull, you'll need to follow a few simple steps. First, you'll need to open an account by going to the Webull website and following the prompts.

Webull is a popular brokerage platform that offers commission-free options trading, making it a great choice for traders of all levels. To get started, you'll need to open and fund an account.

Webull offers multiple funding options, including wire transfer, microdeposits, and ACH deposit. You can log into your Webull account and fund it with your preferred deposit method once your account is approved.

Webull doesn't have a minimum deposit requirement, making it accessible for traders with various budgets. This means you can start trading with an amount that works for you.

Here are the funding options available on Webull:

To sell cash secured puts on Webull, you'll need to have enough money to own 100 shares of the stock outright, depending on the stock you're trading. For example, if you want to option wheel AMD stock at $100 per share, you'll need $10,000 to sell 1 put contract.

Webull offers a comprehensive set of market research tools to aid in options exploration, including information feeds, watch lists, and market news.

These tools enable traders to gather crucial information about various options, making informed decisions easier. The platform's user-friendly layout ensures a seamless research experience on both PC and mobile app.

With Webull's comprehensive research tools, you'll have access to market news, real-time quotes, company profiles, technical indicators, and customizable charts to help you make informed decisions.

You can use these tools to analyse and compare different stocks and options before placing your trades, giving you a solid foundation for your trading strategy.

Paper trading is a risk-free way to explore and learn options trading, allowing you to practice with virtual funds on Webull.

You can use Webull's Paper Trading feature to delve into the world of options trading without worrying about financial loss, making it a great option for both novice and experienced traders.

Webull's Paper Trading feature acts as a simulator, allowing you to practice options trading with virtual funds in a risk-free environment.

With Paper Trading on Webull, you can execute complex options strategies like a straddle or a butterfly spread virtually, analysing their performance in different market conditions before committing real capital.

You can use the Paper Trading feature on both Webull's mobile and desktop platforms, with the desktop platform offering additional features like active trade mode and support for single option strategies.

Selling cash-secured puts is a substitute for placing a limit order on a stock you wish to own, and you can use Paper Trading to practice this strategy with virtual funds.

If the stock doesn't dip below the strike price by expiration, the puts will probably not be assigned, and you won't have the opportunity to buy the stock at the strike price, but you'll get to keep the premium.

You can keep the premium if the options expire worthless, making Paper Trading a great way to test strategies and refine your skills without financial risk.

Webull's market research tools are designed to aid in options exploration. These tools include information feeds, watch lists, and market news, which can be accessed through the platform's user-friendly layout on both PC and mobile app.

Webull's information feeds and market news provide valuable data to help you make informed decisions when selecting options for trading. This data can be easily organised and customised to suit your preferences.

The platform's user-friendly layout ensures a seamless research experience. With Webull, you can gather crucial information about various options, making it easier to identify potential trading opportunities.

Webull provides a wide range of educational resources to help you research and identify potential trading opportunities. These resources include market news, real-time quotes, company profiles, technical indicators, and customisable charts.

Here are some key features of Webull's market research tools:

By leveraging Webull's market research tools, you can make more informed decisions and increase your chances of success in the options market.

Choosing option strike prices is a crucial step in options trading. I target a delta value above or below 0.25.

Using a delta value above 0.25 means the option has a higher chance of expiring in the money, which can be a good strategy if you're feeling bullish about a stock. Robinhood's "Chance of Profit" column can also be a helpful guide, although it's not the same as delta value.

For example, if you think Airbnb has momentum to go higher, you might sell a put option with a strike price below the current price, such as the $155 put. This can give you a higher premium, like $1.27, or $127.

If you're indifferent about a stock, you might opt for a lower strike price to collect a smaller premium, like $0.7, or $70, as seen with the $152.5 strike on Airbnb.

In covered call strategies, the strike price can impact your maximum profit. For instance, selling the $150 strike on AMD could result in a maximum profit of $480.

Selling cash secured puts is a strategy that involves selling put options on a stock you don't own, but with the cash on hand to buy the stock if the price falls below the strike price.

To sell a cash secured put, you need to have enough cash to purchase the underlying shares in case the price moves below the strike price. This is because you're essentially giving someone else the right to purchase the stock at the strike price, and if the price falls below that, you'll need to buy the stock to fulfill the option.

You'll need to choose a strike price and an expiration date for the option, and the premium you collect will be the maximum amount of profit you can make on the trade. If the stock price falls below the strike price, you'll be "assigned" the stock and will need to purchase it at the strike price, incurring an unrealized loss.

For example, if you sell a put on AAPL with a $150 strike price, you'll collect a premium but will need to purchase 100 shares at $150 if the price falls below $150 at expiration. This means you'll need $15,000 in cash to cover the purchase.

Here are the key things to consider when selling cash secured puts:

For instance, if you sell a $165 put on TQQQ with 11 days until expiration, you'll need $16,500 in cash to cover the purchase if the stock price falls below $165 at expiration.

Selling cash secured puts is a strategy that can help you generate income from your investments, but it's essential to understand the risks involved. You need to have cash available as collateral, which is why it's called "cash secured." If the price of the underlying stock goes below your strike price, you'll need to buy the stock at the strike price.

To sell a cash secured put, you'll need to choose a strike price and an expiration date. For example, if you sell a put on TQQQ with a $165 strike price and 11 days until expiry, you'll need $16,500 in cash lying around.

The premium you collect for selling a put is your maximum profit, and it's capped at the premium you receive. In the example of selling a put on TQQQ, the maximum profit is $355. If the stock price moves to $165 by expiration date, you'll keep the premium and be able to purchase the stock at $165.

Selling a put on a stock like NVDA can be a good way to buy into the stock at a lower price. If you sell a put on NVDA with a $292.50 strike price, you'll receive a premium of $601. If the stock price goes down to $292.50 exactly, you'll keep the premium and purchase the shares at that price.

However, selling puts can also result in an unrealized loss if the stock price moves way below your strike price. For example, if NVDA stock price goes down to $280, you'll have an unrealized loss of $12.50 per share, which translates to a net loss of $1,250. But because you sold the option and collected the premium, your net loss is $637.

Here's a summary of the key points to consider when selling cash secured puts:

Scenario analysis is a crucial step in selling cash-secured puts on Webull.

You need to identify potential scenarios that could affect the stock's price, such as a merger or acquisition, a major product launch, or a significant change in the company's leadership.

Consider the stock's volatility and the potential for a big price move, which can impact the value of your put option.

In the example of selling a cash-secured put on Apple stock, a merger with a major tech company could significantly impact the stock's price, making it a high-risk scenario.

In the best-case scenario, the stock dips slightly below $50, and you get to buy it at a lower price. This is exactly what happened in Scenario 1, where the stock was at $49.75 at expiration.

You'll buy 100 shares at $50 per share, but since you received a $1 per share premium for the sale of the put, it's as if you paid net $49 per share. This means you achieved a savings of $75 before commissions ($0.75 x 100 shares).

The key takeaway here is that you received a $1 premium, which is essentially free money. It's like getting a discount on the stock you wanted to buy.

Trading around earnings can be a high-risk, high-reward scenario. Volatility is at its highest point during these weeks, and implied volatility always goes up.

The price of the stock may not move much, but the implied volatility can be much higher than expected due to market anticipation. This means calculating IV using Black Scholes vs what you see in the market can vary drastically during earnings season.

You can have a stock move sideways 1% leading up to an earnings release, and then have it go up or down 10% in the next day. This additional IV means juicier premiums around this time.

Your premiums will be elevated, which means your "breakeven price" will be higher. You are, of course, running the risk that the company blows out earnings and your stock goes to the moon or vice versa.

IV Crush is a concept that all option traders should be familiar with. When you're trading around an earnings release, Implied Volatility will almost always be higher than previous days.

Selling options around earnings means you can collect much larger premiums and IV crush is in your favor.

Selling cash-secured puts on Webull can be a great way to generate returns on your idle cash, but it's essential to understand the risk and reward profile. The best scenario for you as a put seller is that the put option expires worthless and is never assigned, allowing you to keep the full premium.

The premium proceeds can be a significant source of income, as James's example shows. He sold one $100 16 Sep 22 Put contract at a premium of $2.00 with 26 days until expiration, earning an effective yield of 2% on his $10,000 cash.

If the put is assigned, you'll buy 100 shares of the underlying stock at the strike price, which can be a positive cash inflow as long as the stock price doesn't drop below the breakeven price. The breakeven price is calculated by subtracting the premium from the strike price, so in James's case, it's $100 - $2 = $98.

A $1 reduction in the share price against a $2 premium still results in a $1 per share gain for you, as James's example illustrates. You can calculate the breakeven price for your own trades using this formula.

If the stock price is below the breakeven point before expiration, you'll start losing money because the premium received can't offset the loss on the sold put. In this scenario, you can exit your short put position by making a closing purchase, but this will likely result in some loss due to paying a higher premium than you collected.

Here's a summary of the potential outcomes: