Reader Mail: Selecting Options Strikes

Sean McLaughlin
January 19, 2023

I got a lot of feedback on my last letter where I suggested active traders need to stop trading Covered Call spreads for tactical trades and instead do a simple Naked Puts trade.

Thank you to everyone who engaged.

Anyway, here’s one question [edited to the important parts] I got from a reader where I thought my answer might be instructive to more of you:

Hi Sean,

I read your information on naked puts. When I intend to buy a stock, I would like to sell a put. I just don't know how to go about it. I just don't know where the strike price would be. I understand that I would have to buy the stock at that price (whether it is better or worse than hoped).

If you could give me an example that would help.

Cheers!

This is a great question, but one without a clear-cut answer. Here was my response:

There's no one right answer to picking a strike.

It comes down to our Why.

Am I selling the put because I just want to keep the premium, with no intention of taking on the stock? If so, then selling at a strike below a significant support level often feels like the right move to me.

Am I selling the put because I'd actually like to own the stock, but at a better price? In that case, I'd want to identify the level at which I'd be happy to be an owner of the stock and sell that strike.

Was this helpful? Let me know!

Trade 'em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research

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