 Hey, here we go now. Hey everybody Lee Lowell here smart option seller comm today is Saturday September 26 2020 hey listen if you're put option seller and you're working with interactive brokers or you want to be a put option seller I've been getting some requests from people to show them exactly how I sell put options at Interactive brokers the actual mechanics that I use What's the steps involved? So I'm going to show you how I do that today? I'll also give you a little cheat sheet on how I actually pick put options to sell so stick around for that I'll show you that so welcome to another edition of the Saturday synopsis We like to take a look at the charts see how the market did over the last week and see what may come forward in The coming week, so let's dive right and take a look at the charts We always look at the SPY exchange traded fund for the SP 500 gives us a broad overview of the overall market What's been happening the last couple weeks? Well, we've had this move down the last few weeks after we had hit all-time highs We've got the 20-day moving average 50-day moving average the market has blown through the 20-day and has gone through the 50-day so that's sort of Telling let's been about a 10% move for most of the indexes and for a lot of stocks as well What happens is we've get this big down move the market has to digest that move does some sideways trading before it figure out Before it figures out where it wants to go next and that move was down through the 50-day moving average So this past week was a lot of up and down a lot of meandering We had the down up down up so we finish the week This was the whole week right here meandering again So the market needs to decide where it wants to go next and that's what happens when we get this Meandering type of movement will we move down to the 200-day moving average which is like a really big line in the sand I hope not because that means more selling is involved So what I'd like to see is more bottoming action here more sideways action And then the market could get back up to its upward trajectory We definitely need to see the market move above the 50-day moving average, you know falling below it is a pretty big deal And so it's still digesting this big move still trying to figure out where it wants to go So let's try to see if we can get some more meandering action and then movement to the upside Let's take a look at the NASDAQ The NASDAQ composite has been the strongest of all the indexes had the big move down a few weeks ago Did the meandering broke down through the 50-day moving average and spent this week meandering just like the S&P 500 The good thing is that it had a big move up on Friday close You know still below the move the 50-day moving average, but it's getting closer So I'd like to see some more meandering here 200-day moving down here still sloping upwards, which is good 50-day still sloping upwards We've got the 20-day that's curling over to the downside So that's a little bit telling but that's on the shorter end of the scale the 50-day is really what we want to concentrate on here So let's see if the market could you know find its footing meander a little bit and then move back higher That's what I'm hoping for for the next week and forward. Let's take a look at the Dow industrials Third index we always look at same thing got through the 20-day last week move through the 50-day this week Meandering action got the 200-day the flat flat flat 200-day moving average lurking down here It's not too far below it. So if it does come down, we should see some good support down here once again, I Probably guessing we're going to see some more sideways action still digesting the big down moves over the last few weeks It's got to find its footing maybe carve out like a curved bottom here That's how bottomings long-term bottom is using start get some meandering and then some curve bottom bottoming action So let's see if we could get back above the 50-day moving average as well over the the next week or so Take a look at the VIX. We always look at the VIX volatility indicator Moves inversely to the general market Had its meandering week as well. Here's the 50-day moving average this line right here So the VIX is above the 50-day just like the market is below the 50-day they move inversely to each other So not a lot going on here sideways action this week option premium still Lower than it was coming off the the big down move in the market, but still above its long-term average here I'd like to see volatility move back down. That would mean the market is going up Let's take a couple Let's look at a couple charts of nope some some big players in the market We always look at these to see what's happening Apple and most of these are the tech stocks Because these are the ones leading the market Apple everyone's favorite Good thing about Apple it was trading below the 50-day moving average line right here But it you can see it closed just above the 50-day moving average Let's see if we could expand this a little bit You can see the little dash on the right side of this bar and that means a closing price closing prices are very important Close just above the 50-day moving average, which is a good sign. So hopefully we can Apple kid Keep moving up next week and pull the rest of the market with it. Let's take a look at Amazon Of course another biggie Amazon's closed below the 50-day moving average for a while now Trying to move back up as well still below it Amazon's a little weaker than Apple, but let's hope that next week it either meanders or moves back up Let's take a look at what else we have Google as well Another big player Google has blown through all the moving averages and has landed right on support right on the 200-day moving average. This is critical right here We really don't want to see Google move down below it because that can drag everything else with it So let's see if the 200-day moving average holds got one two three about three or four days We're just bounced off this 200-day moving average. Let's see if it could move its way back up Microsoft another one Microsoft had a good day on Friday moving back up moving back towards the 20-day and the 50-day if it could blast through both These that would be a very good sign Facebook is You know same as the others came down through both moving averages sideways action here Let's see if it could kind of have a little bottoming action here and move back higher Tesla. Look at Tesla Tesla's been strong stronger the strongest of some of these stocks bounce right off the 50-day moving average On Thursday had a good bounce. So test is still pretty strong people like it So good bounce here. Let's see. Maybe Tesla could could lead the market higher come next week Couple other charts of note. I want to show you in the metals market gold and silver. I want to show you how these Patterns work very well Could give you an idea how how to play a market. Let's take a look at silver because that was very pronounced in silver Call the triangle pattern triangle pattern right here That means the market starts out wide and then the ranges get tighter and tighter and tighter until it reaches the apex here And it's got all this energy that's coiling up and wants to bust out Just not sure which way it's gonna bust out yet But when it finally busts out either higher or lower tends to keep moving in that direction for a number of days You can see how silver just blasted to the downside. It's just expanding all that energy Same thing with gold but not as pronounced take a look at gold. These are the futures. Just look at silver futures This is the gold futures for December December gold futures Same thing it's coiling up into the triangle pattern and then it blasts it out to the downside So these patterns work people if you know your chart patterns You can find these on charts all the time and they work pretty well We've talked about bull flags in the in the past. There's a triangle pattern So keep in keep a watch out for those kind of patterns. So that's it for the market assessment as I said next week Let's pull up the SPY one more time Market still digesting the down moves still trying to figure out what it wants to do Let's hope for some way more meandering sideways action and then the market could kind of find its footing and Move back up. So that's it for the market assessment. So let's talk about the options information today Put options on that is what we do here at the smart option seller We are put option sellers are bread and butter and people have asked me They want to know what the mechanics are of selling a put option at interactive brokers Interactive brokers is is a broker that you can trade through I use them a lot of people use them They want to know how to do it. So let's pull up our interactive brokers screens here This is the Classic TWS trader workstation down here. It says classic TWS that says our trader workstation and there's other tabs here You can configure the screens any way you like. This is options trading tab. There's something called mosaic I stick with the classic only because I've been using interactive brokers for so long I'm just so used to it now what you can do is you can You can pull up stocks and options you can type them in here and you get the quotes here So it seems like Saturday today interactive brokers is not showing the bid and ask left over from Friday They usually have the market quotes here. Let's take a look at the this is the options trader part of interactive brokers Another way you can look at option chains. This is what I really like about interactive brokers We got calls on the left puts on the right as I said, okay, so we've got the Last prices showing up, but typically they have the bid and ask prices left over from Friday session not showing up here, but that's okay. We're gonna look at We can go back to our charting package We're gonna look at e-signal and here's their option chain for e-signal and we're gonna Show you I'm gonna show you how I sell a put option pick a put option And then how I do it in interactive brokers But first let's take a look at my cheat sheet again I always have a cheat sheet for you on the steps to selling put options now remember if you're a put option seller What you're doing? You're actually obligating yourself to potentially buy stock in the future at a price of your choosing Which is a good thing. There's a stock that you want You don't want to buy it at its current price. You want to buy it at a potentially lower price You could do that by selling the put option. So here's my my four-step process for selling put on number one You want to pick a quality stock that you would like to buy at a reduced price from where the stock currently trades now So you're looking to potentially buy the stock later on at a lower price You're gonna choose an expiration date two to four months out in time shorter the better as option sells We always like shorter time from but that doesn't always mean it's better Let me take that back shorter is better Yes, but it has to it has to meet the other requirements for selling the proper Strike price. So we want to choose an expiration date in my opinion This is my sweet spot two to four months out in time if I can get the two month That's expiration. I will do it You're gonna choose an out-of-the-money strike price with a 20% cushion Below the current price of the stock when I go through the example I'll show you what that means and we're gonna look for a credit of 25 to 30 cents when we actually sell that put option So this is a very conservative strategy. We'd like to play in very safe. These are hitting singles We're not going for home runs here So we're playing very safe and these type of trades usually to probability of profit of 90% or greater Now when I say probability of profit, there's two things that could happen when you sell a put option You're either gonna have to buy the stock if the stock comes down to your strike price or the option will expire worthless So there's there's two ways that you can play Now typically the way we do it is most of the time We will buy the option back at a very cheap price and lock in our profits or the option will expire So that's what I mean when a probability of profit That means if you sell this the put option here and you buy it back here At a lower price you're gonna lock in your profit. So that's 90% of the time you're gonna lock in that profit that way On the off chance, you will get a signed meaning that you will have to buy the stock as long as you want to do that So here's your four-step process. We're gonna take a look at the charts and see what we want to do now We're talking about examples only. This is not a real recommendation This is not a real recommendation Just showing you examples. We're gonna look at Walmart. Here's a chart of Walmart Now if I was interested in potentially buying Walmart, you know, of course, I can go out and just buy it at its current stock price You buy it right at it closed at 137 27 on Friday yesterday, September 25th, 2020 I can go out and buy the shares But for me, I'm thinking, you know what? Maybe I want to try to buy Walmart Somewhere down here below the 200-day moving average. I really want to get it at a really cheap price I want to get at a discount and so what would I do? I could sell a put option at a strike price down here somewhere Which means Walmart would have to fall all the way down here before I would actually get a chance to buy the shares of stock now One of my rules is that I look for at least a 20% cushion below the current price of the stock So here's current price of stock 137 20 percent below that's about 26 27 dollars Below the current price. So we're looking at maybe 26 so maybe a hundred hundred and ten strike price at least hundred and ten strike price That'd be about twenty percent below so my first inkling would would be to look for a strike price at the hundred and ten level two to four months out in time and Receiving a twenty five to thirty cent credit. So let's go back to Our option chain here with a look at option and then we're gonna pull up interactive brokers and show you how we actually sell it Walmart now, so we want to go to two four two to four months out in time So let's take a look at we can look at November and December So that's roughly, you know within our time range And it'll pull up the options now here. I put options on the right now E signal has all the the prior days information bid as prices. So we got November you can see down here This is November 2020 and then a little further down We have The December options down here. So we want to see what the 110 puts are trading for In either November or December because that's our 20% cushion the November strike The 110's so we've got a couple different Same strike prices. These are for the different expiration dates within each month. We have weekly options that trade So we're looking at the the normal third Friday of the month expiration And that would be the November 110 puts right here So close at 48 cent bid at 55 cent offer now we can even go down to the 105 puts even get more Cushion that's 25 cent 45 cent offer So right there in the middle is where you always want to try to trade in between the bid nas 25 cent bid 45 cent offer So we could probably sell these 105 puts at 35 cents a contract that would meet our requirements Which is a good thing now Let's go to Interactive brokers and take a look at the option chain for Walmart got Walmart pulled up here. Here's November So the date would be November 20th 2020 the other date of November is November 6 So you get these weekly options that trade Weekly this is the art the normal Expiration you can do the drop-down and when it says regular that means the regular monthly Third Friday of the month expiration, but you can choose any one of these other Weekly expirations if you want so we're looking at November 20 55 days out and for Walmart We were looking at the 105 puts so they closed on Friday at 39 cents a contract Okay, the bid nas quotes are not shown here for Interactive brokers But we just saw it was a 25 cent bid 45 cent offer in our e-signal So if we wanted to actually sell these which would meet the requirements 105 puts has a nice cushion below the the last price of Walmart showing up here at 13670 And that's about the 105 is about a 31 dollar cushion below that so that's well over 20 percent That's maybe about 22 percent or so So if we were to sell these 105 puts there's two ways we can do it in Interactive brokers We're in the options trader tab what we would do is You know the the numbers aren't showing here, but we click on the bid price Okay, and that will bring up another screen right here So since you want to sell these you you click on the bid price and that will invoke a sell order And it'll bring up a trading ticket like this and it'll show you what you want to do before you do it You can check all the numbers it already defaults to the sell ticket It's got the little dot here if I was to buy it this black circle would be in the buy side So it already defaults to sell you can change the quantities Okay, you can use these up arrows down arrows change your quantities. It's a limit price So we're going to sell it at a limit price of 35 cents of contract. We're going to just type that in Okay, 35 cents and it's going to be the destination is smart. That means the the Software will choose the best option exchange to send the order And you if you want to have a good till canceled you can change that to good till canceled Now you click on preview right here preview button down here And it's going to tell you what you're about to do before you actually send the order We got a little warning here. Don't have to worry about that So it's telling you you're going to sell three contracts of a walmart november 20th 105 puts And your price is 35 cents of contract. That's what you're going to want to do And typically they would have the information down here how much you're going to collect And what the margin Your margin requirement would be but for whatever reason Interactive brokers is not showing this today So we're going to close it out because we're not going to actually Launch the trade now. We can also create That same trade in the main home screen here Now, let me go to a new screen here and actually go back to this one So if you want to follow quote, you would just type in the symbol you click in any any line here Okay, type in walmart W mt for walmart. We want to see the stock price at least Okay, now trading was active. We'd get the bid and ask prices and all that market is not open right now Now if we want to follow this the option contract type in walmart again At this time we choose options And it's going to bring up this window here and you're going to choose The option that we want to follow We're going to look at the november Contracts and the 105 puts just click on it and it'll bring up the it'll bring up the Contract right here. Okay, so now you have not only walmart stock, but you have the contract that you can follow It'll have the bid and ask quotes All day long. Here's where it closed yesterday on friday So during the day during market action you can see the bid and ask and if you wanted to invoke an order from this screen All you have to do is click on the bid price again Like I showed you and it will bring up the screen So you can actually invoke the order from the main screen here or you can invoke the order from The option trader screen here Like I said, you want you click on the bid price. Okay, if you want to sell you can see the little sell If I move it over to the ass, it'll change the blue for buy Sell is red. So you click on the bid price when there would be a bid price in there And it'll bring up the order screen here or the ticket So there you go. That's it's very simple. Okay, so interactive brokers you have a couple different ways You can use the option trader. You can use the main screen You can choose an options trading tab. So you can configure these windows You have the the options trader screen here and you can do a chart and all these other things or the mosaic You can you know change all these windows. So it's very configurable. Like I said, I Default to the classic tws just because I've been using it for so long. So that's what I do All right. So there you go. That's how you do it That's how I sell put options at interactive brokers. Let's go back to our cheat sheet here. Remember When you're selling put options, you need to stick with stocks that you have a genuine interest in Potentially buying you don't want to sell put options on stocks. Just just to get the premium. That's not how you do it You can get in trouble by doing that You choose an expiration date two to four months out in time Short of the better as long as you can still get the 20 cushion and a 25 to 30 cent credit when you sell Those put options. Okay, and those typically lead to a 90 percent or greater probability of profit now How do I know that? Well, another thing we could do is we can go up to our probability calculator and that tells us You know our chances of the stock moving to The expiration moving down to this the the level that we're interested in buying it So let's take let me see how many days we're left. So 55 days. So when we go into our probability calculator We i'm putting in the stock price of walmart. So 137 expiration date of november's 55 days ahead volatility for walmart's about 30 Now we will want to know is what are the chances of walmart Falling down to a hundred and five dollars because that's the strike price that we're choosing This will tell you what your chances are of that happening click on go So what the probability calculator is telling us is that there's only a 1.1% chance that walmart will fall from 137 Down to 105 in the next 55 days. So that's telling you You you only have a 1 chance that you're going to be able to buy Walmart at 105 conversely there's a 98.8 chance that walmart will stay above 105 over the next 55 days and if that happens, that's fine The option will just expire worthless and you'll keep the money You'll keep your 35 cents that you collected by selling that put option That's what I mean. We usually have a 90 percent or greater probability of profit We have in this case It's a 98.8 probability of profiting on that trade and by that I mean You're going to sell the option at 35 cents and most likely it's either going to expire worthless Or you can buy it back for nickel and lock in your 30 cent profit. That's 30 actual dollars for every contract that you sell So probability calculator a good thing To help you gauge that the the probability of a stock moving from point a To point b and in this case is only 1 chance of walmart falling that far So looks like you won't be able to buy a stock at 105, but at least you'll make 35 bucks per contract in the process Okay, so that's that is The information for today Looked at the charts. We looked at selling options at selling put-ons at interactive brokers That'll pretty much do it for me. Remember If you like this video, please please please give me a thumbs up Don't forget to hit the subscribe button in in the Bottom right corner of the screen you're watching hit that red subscribe button That way you'll be notified every time I put out a new video every week Send me a comment write a comment below as well Also Send me an email if you have any questions. I'll always answer you can email here You can comment in the comments about your question. You can email me also. Don't forget to go to our website Okay, put selling basics our free put selling basics Guide tells you all about how to sell put options. You can actually click on the the Tab here or you can just put your name and address an email address in here put selling basics guide We'll bring you up to the other page tell you about this guide that we've written get it for free lastly Don't forget our services tab smart options seller newsletter vertical spread trader newsletter All about selling put options and our one-on-one one-on-one coaching if you need some Personal attention on to get your trading option trading to the next level. Okay. That's it for me today Have a good weekend everybody. Have a great week trading ahead and I will see you next saturday. This is lee lull signing off