Hello there! Ever wondered how to potentially generate income or acquire stocks at a discount using options? If so, you're in the right place! Selling puts on Webull can be a powerful strategy when understood and executed correctly. It allows you to collect a premium upfront for taking on the obligation to buy shares of a company at a specific price (the strike price) if the stock falls below that price by a certain date.
This guide will walk you through every step of the process, from getting your Webull account ready to placing your first put-selling order. Let's dive in!
A Comprehensive Guide to Selling Puts on Webull
Step 1: Getting Your Webull Account Options-Ready
Before you can even think about selling puts, you need to ensure your Webull account is set up for options trading. This isn't just about having an account; it's about having the right kind of account and the necessary approvals.
Sub-heading: Account Type and Funding
First things first, you'll need a brokerage account with Webull. While a cash account allows some basic options strategies like covered calls, selling puts typically requires a margin account for higher options trading levels. This is because selling puts, especially "naked" puts (which we'll discuss later), involves significant risk and the potential to be assigned shares, requiring substantial buying power.
Open a Webull Account: If you don't already have one, download the Webull app or visit their website to open an account. The application process is generally straightforward and requires personal and financial information.
Fund Your Account: You'll need to deposit funds to trade options. Webull offers various deposit methods, including ACH transfers, wire transfers, and micro-deposits. Ensure you have sufficient capital to cover potential assignments, especially for cash-secured puts.
Sub-heading: Options Trading Application and Approval
Selling options is considered a more advanced trading strategy, and brokers like Webull require you to apply for options trading privileges. This process assesses your understanding of the risks involved.
Navigate to the Options Application: Within the Webull app or desktop platform, go to your account section. You should find an option to apply for options trading.
Complete the Application: You'll be asked a series of questions about your trading experience, financial situation, and investment objectives. Be honest and accurate. Your answers determine your options trading level.
Understanding Options Levels: Webull typically has different options trading levels. For selling puts, you generally need at least Level 1 for cash-secured puts and potentially higher levels (like Level 2 or 3) for more complex strategies such as naked puts.
Level 1: Often includes strategies like covered calls and cash-secured puts.
Higher Levels: Typically allow for multi-leg strategies, spreads, and potentially naked options.
Await Approval: After submitting your application, Webull will review it. This usually takes a short period, sometimes even a few minutes. You'll receive a notification once your options trading privileges are approved.
Step 2: Understanding Put Options and the Selling Strategy
Before you place any trades, it's crucial to grasp what put options are and the mechanics of selling them.
Sub-heading: What is a Put Option?
A put option gives the buyer the right, but not the obligation, to sell 100 shares of an underlying asset (like a stock) at a specified price (the strike price) on or before a certain date (the expiration date).
Sub-heading: Why Sell Puts?
When you sell a put option, you become the seller (also known as the writer) of this contract. You take on the obligation to buy 100 shares of the underlying stock at the strike price if the put buyer decides to exercise their right to sell. In exchange for taking on this obligation, you receive a premium (cash) upfront from the put buyer.
The primary motivations for selling puts are:
To generate income: If the stock price stays above the strike price until expiration, the put option expires worthless, and you keep the entire premium as profit.
To acquire shares at a discount: If the stock price falls below the strike price and the put is exercised (assigned), you are obligated to buy the shares at the strike price. Your effective purchase price is the strike price minus the premium you received, making it a potentially attractive entry point for a stock you wish to own at a lower price.
Sub-heading: Cash-Secured Puts vs. Naked Puts
It's vital to understand the difference, as it dictates the risk and capital requirements.
Cash-Secured Puts: This is the recommended strategy for beginners selling puts. When you sell a cash-secured put, you set aside enough cash in your account to buy the underlying 100 shares if the option is assigned. For example, if you sell a put with a strike price of $50, you need to have $5,000 (100 shares x $50) in your account. Your maximum loss is limited to the strike price minus the premium received, if the stock goes to zero.
Naked Puts (Uncovered Puts): This involves selling a put option without having the cash or a short position in the underlying stock to cover the potential assignment. This is a much riskier strategy because your potential loss is theoretically unlimited if the stock price plummets. Webull generally requires a higher options trading level and a margin account for naked put selling due to the increased risk. This guide primarily focuses on cash-secured puts.
Step 3: Researching and Selecting the Underlying Stock
Choosing the right stock is paramount when selling puts. You should only sell puts on companies you wouldn't mind owning at the strike price.
Sub-heading: Criteria for Stock Selection
Fundamentally Strong Companies: Look for companies with solid financials, a good track record, and positive long-term prospects. You're potentially committing to buying these shares.
Stocks You'd Be Happy to Own: If the stock drops below your strike price and you are assigned, you will own 100 shares per contract. Make sure it's a company you believe in for the long term.
Liquidity in Options: Choose stocks with actively traded options. This ensures you can easily enter and exit positions, and the bid-ask spread is tight, reducing trading costs.
Volatility (Implied Volatility): Higher implied volatility generally leads to higher premiums. However, higher volatility also means greater price swings, increasing the chance of being assigned. Strike a balance.
Sub-heading: Using Webull's Research Tools
Webull offers various tools to help you research stocks and options.
Stock Screener: Use Webull's screener to filter stocks based on market cap, industry, financial metrics, and more.
Technical Analysis: Utilize Webull's charting tools and technical indicators to analyze price trends and support/resistance levels.
News and Financials: Review company news, earnings reports, and financial statements directly within the Webull platform to gauge the company's health.
Step 4: Navigating the Options Chain on Webull
The options chain is your central hub for all options-related information.
Sub-heading: Accessing the Options Chain
Search for the Stock: In the Webull app or desktop, search for the ticker symbol of the stock you're interested in (e.g., AAPL, TSLA).
Go to the "Options" Tab: Once on the stock's detail page, you'll see various tabs like "Quotes," "News," "Analysis," etc. Tap or click on the "Options" tab.
Sub-heading: Understanding the Options Chain Layout
The options chain displays a list of available call and put contracts for different expiration dates and strike prices.
Expiration Dates: At the top, you'll see a list of upcoming expiration dates. Select the expiration date that aligns with your strategy. Shorter-term options have less time decay but also smaller premiums. Longer-term options offer higher premiums but tie up your capital for longer.
Strike Prices: Down the middle, you'll see the strike prices. These are the prices at which the underlying stock can be bought or sold.
Bid/Ask Prices (for Puts):
The Bid price is what buyers are currently willing to pay for the option.
The Ask price is what sellers are currently asking for the option.
When selling a put, you'll be looking to receive the bid price.
Implied Volatility (IV): This indicates the market's expectation of future price swings. Higher IV generally means higher premiums.
Greeks (Delta, Gamma, Theta, Vega, Rho): These are measures of an option's sensitivity to various factors. While more advanced, understanding Theta (time decay) is particularly relevant for sellers, as it represents the daily erosion of an option's value due to time passing.
Step 5: Placing Your Put-Selling Order
Now for the exciting part – placing the trade!
Sub-heading: Selecting Your Put Contract
Choose an Expiration Date: Select the desired expiration date from the top of the options chain.
Identify Your Strike Price: Look at the put side of the options chain. You'll want to choose a strike price where you'd be comfortable buying the stock.
Out-of-the-Money (OTM) Puts: These have a strike price below the current stock price. They have a lower probability of being assigned but offer smaller premiums. This is generally preferred for income generation.
At-the-Money (ATM) Puts: The strike price is equal to or very close to the current stock price. These offer higher premiums but a higher chance of assignment.
In-the-Money (ITM) Puts: The strike price is above the current stock price. These offer the highest premiums but have the highest probability of assignment, and you would be buying the stock at a price higher than its current market value.
Click on the Bid Price: To sell a put, you'll click on the bid price of the specific put option you wish to sell. This will open the order entry screen.
Sub-heading: Configuring Your Order
Once the order entry screen appears, you'll need to configure your trade details.
Order Type:
Sell to Open (STO): This is the correct order type for selling a new put contract.
Limit Order: Always use a Limit Order when selling options. This allows you to specify the exact premium you want to receive. Market orders can lead to unfavorable fills.
Quantity (Contracts): Options contracts represent 100 shares each. If you want to sell 1 contract, you are obligating yourself to potentially buy 100 shares. If you sell 5 contracts, it's 500 shares.
Price (Premium): This is where you input the premium you wish to receive. You'll typically aim for a price between the bid and ask, or at the current bid.
Time in Force:
Day (D): The order will only be active for the current trading day. If it's not filled by market close, it's canceled.
Good-Til-Cancelled (GTC): The order remains active until it's filled or you manually cancel it (up to 60 days on Webull).
Review Order: Double-check all the details – the stock, expiration, strike price, premium, and number of contracts. Ensure you have enough buying power for a cash-secured put.
Confirm and Place Order: Once everything looks correct, confirm your order.
Step 6: Monitoring Your Position and Managing Outcomes
After placing your order, your work isn't done. Active monitoring is key.
Sub-heading: Monitoring Your Put Position
Track Stock Price: Keep an eye on the underlying stock's price relative to your strike price.
Monitor Option Premium: The value of the put option will fluctuate. Ideally, you want the premium to decrease so you can buy it back for less or let it expire worthless.
Time Decay (Theta): As time passes, the extrinsic value of the option decays. This works in your favor as a put seller.
Sub-heading: Possible Outcomes and Management Strategies
There are a few scenarios that can play out when you sell a put:
The Stock Stays Above Your Strike Price:
Best Case: The stock remains above your strike price until expiration. The put option expires worthless, and you keep the entire premium as profit. No further action is needed, and the cash reserved for assignment is released.
Mid-Trade Management: If the put loses most of its value before expiration (e.g., 80-90% profit), you can buy to close the option to lock in profits and free up your capital sooner. This also eliminates any risk of a late market reversal.
To do this, go to your "Positions" tab, select the put option you sold, and choose "Buy to Close." You'll place a limit order at a lower price than you sold it for.
The Stock Falls Below Your Strike Price (But You're Still Comfortable):
If the stock price dips below your strike price but you're still bullish on the company and happy to own the shares at that price, you can allow the option to be assigned.
Assignment: If assigned, 100 shares per contract will be purchased in your account at the strike price. Your cost basis will effectively be the strike price minus the premium you received.
The Stock Falls Significantly Below Your Strike Price (and You're Uncomfortable):
If the stock experiences a sharp, unexpected drop, and you no longer wish to own the shares at the strike price, you can buy to close the put option to limit your losses. This might mean buying it back for a loss, but it prevents you from being assigned shares at an even higher unrealized loss.
Rolling the Position: This is an advanced strategy where you buy to close your current put option and simultaneously sell to open a new put option with a later expiration date and/or a lower strike price. This can be done to collect more premium, give the stock more time to recover, or adjust your potential entry price. Be cautious with rolling, as it can sometimes just delay losses.
Step 7: Understanding Risks and Best Practices
Selling puts, while potentially profitable, carries inherent risks.
Sub-heading: Key Risks to Be Aware Of
Assignment Risk: You are obligated to buy shares if the put is exercised. Ensure you have the cash (for cash-secured puts) or are prepared for the margin implications (for naked puts).
Price Drop Risk: If the stock price drops significantly below your strike price, you will incur a loss if assigned, as you're buying shares for more than their current market value.
Opportunity Cost: If the stock rallies significantly, you only collect the premium, missing out on potential gains from owning the stock outright.
Liquidity Risk: For illiquid options, it can be difficult to close your position at a fair price.
Early Assignment Risk: While less common for OTM puts, American-style options can be exercised at any time before expiration.
Sub-heading: Best Practices for Selling Puts
Start with Cash-Secured Puts: Especially as a beginner, always ensure you have the capital to cover potential assignments.
Sell OTM Puts: This gives you a buffer against price declines and increases the probability of the option expiring worthless.
Choose Reputable Companies: Stick to stocks you'd genuinely be happy to own for the long term.
Manage Your Risk: Never allocate too much of your portfolio to a single put-selling position. Diversify.
Don't Be Greedy with Premiums: Sometimes, the best premium is the one that allows you to confidently take on the assignment risk.
Understand Your Breakeven Point: For a put you sell, your breakeven point is the strike price minus the premium received.
Utilize Paper Trading: Webull offers a paper trading feature. Practice selling puts in a simulated environment before using real money. This helps you get comfortable with the platform and the strategy without financial risk.
Frequently Asked Questions (FAQs) about Selling Puts on Webull
Selling puts can be a fantastic tool, but it comes with questions. Here are 10 common ones:
How to get approved for options trading on Webull?
You need to open a Webull brokerage account, fund it, and then navigate to the options trading application within the app/platform. You'll answer questions about your financial experience and risk tolerance to determine your approval level.
How to check my options trading level on Webull?
Typically, you can find your approved options trading level within your account settings or profile section on the Webull app or desktop platform.
How to calculate the maximum profit for selling a put on Webull?
The maximum profit for selling a put is the premium you receive when you sell the option, multiplied by 100 (for 1 contract).
How to calculate the maximum loss for selling a cash-secured put on Webull?
The maximum loss for a cash-secured put is the strike price multiplied by 100, minus the premium received, assuming the stock goes to zero. In reality, your loss is only realized if you are assigned and the stock continues to drop after assignment.
How to close a put option position on Webull before expiration?
To close a put you sold, you need to "Buy to Close" the same contract. Go to your "Positions" tab, select the put, and choose to buy it back. You'll aim to buy it back for less than you sold it for to realize a profit.
How to avoid early assignment when selling puts on Webull?
While you can't guarantee avoiding early assignment, it's less likely for out-of-the-money (OTM) puts. If you are concerned, you can "Buy to Close" your position before the option becomes deep in-the-money.
How to know if I have enough buying power for a cash-secured put on Webull?
Webull's order entry screen will usually indicate if you have sufficient buying power for the trade. For a cash-secured put, you need the strike price multiplied by 100 shares per contract available as cash in your account.
How to find high-premium put options on Webull?
High premiums are often associated with higher implied volatility. You can use Webull's options chain to sort by implied volatility or look for stocks with upcoming news events (like earnings) that tend to increase volatility.
How to roll a put option on Webull?
Rolling a put involves two simultaneous actions: "Buy to Close" your existing put and "Sell to Open" a new put with a different (usually later) expiration date and/or strike price. Some brokers offer a specific "roll" order type for convenience.
How to practice selling puts without real money on Webull?
Webull offers a "Paper Trading" feature. You can access it through the app or desktop platform to practice trading options, including selling puts, with virtual money in a simulated live market environment. This is highly recommended for beginners!
Selling puts on Webull can be a rewarding strategy for generating income or acquiring shares at a desired price. By understanding the process, managing risks, and utilizing Webull's tools, you can confidently explore this exciting area of options trading. Happy trading!
