Short Put Option Management - Rolling Down & Out

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A short put is an options trade that obligates you to acquire 100 shares of stock at the expiration of your strike price if the stock ends up below your put strike. This is an options strategy that allows you to profit if the stock stays the same, goes up, or even goes down a little bit, so long as your strike stays below the stock price at expiration.

Even if the stock does go below your short put strike, you can "be put" the 100 shares of stock at a lower cost basis than if you were to buy the shares outright in the market at the time you sold the put in the first place. This makes it an effective strategy if your intention is to acquire 100 shares of stock at a lower basis, and still profit if the stock stays the same or goes up.

In this trade talk, Mike Butler walks you through the short put strategy, how short put options are priced in terms of intrinsic and extrinsic value, and how you can defend the short put by rolling the contract further out in time to add extrinsic value to the position, which reduces monetary risk and gives you more time for the stock to potentially rise back above the strike price.

He also walks through an alternative defensive strategy that involves rolling the strike out in time and down a few strikes, reducing cost basis even more by giving up the extrinsic value associated with the roll out in time in exchange for a lower strike price.

Tune in to learn all about this popular options trading strategy and how to defend it effectively!

0:00 Introduction
1:47 What is a Short Put?
3:45 What are Popular Short Put Applications?
4:47 Short Put Recap
5:29 Short Put Defense: Rolling Out in Time
7:00 Short Put Intrinsic & Extrinsic Value Breakdown
7:29 Short Put vs Covered Call Visual
7:43 Short Put Roll Out Recap
8:05 What Does Rolling a Short Put Out Achieve?
8:57 Short Put Defense: Rolling Out & Down
10:21 What Does Rolling Out & Down Achieve?
11:06 Short Put Defense - Ultimate Takeaway

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