Selling in the money put options for income generates enormous returns that far exceed selling out of the money puts. Throughout January 2013 for example, I have sold in the money put options on Clorox Stock as the stock has been rising for excellent returns. The strategy of selling in the money put options makes a lot of sense when you understand the risks that are associated with the strategy. A stock like Clorox Stock makes an ideal candidate for in the money Put Selling with its $2.56 annual dividend, strong history of earnings growth, and past record of trading within definable ranges.
But no strategy works forever on the same stock as conditions change. It’s fine having a strategy for put selling in the money options, but investors also need a strategy for rescuing the in the money put options when the stock takes a tumble and leaves the investor holding naked puts that are then deeper in the money and at a high risk of having shares assigned.
The most important aspect of any strategy has to be consistent profits. I like consistent profits and I also like keeping those profits even when the trade turns against me. To be able to handle selling in the money puts for what is always larger income returns, investors need rescue strategies that can get their capital returned safely to them with their profits still intact. These rescue strategies have to be consistently successful and cannot rely on luck. To that end, investors need to know the rescue strategy they will be using BEFORE they commencing selling in the money put options for income. This content is for members only.