I would like to sell put to generate income and to buy a put at a lower price to protect myself. The net is a credit transation. I will be using IB . I would much appreciate comments and advise about this strategy. How much can you expect to earn as a percentage of margin provided? Where can I read more about this style? Thanks for all info.
It's simply a credit spread, one of the most common trades done with options, and can be done with either puts or calls, don't get wedded to a market direction/opinion. Any option book will describe that and other strategies as well. Jessie
You should be able to find plenty of info about these strategies in just about any option book, or even just doing a "google" search using options trading. Don't limit yourself to just selling put spreads, if selling spreads is going to be your game, consider selling call spreads too. Same risk characteristics, profit potential, and margin requirements. You get a thumbs up for at least recognizing that you need to be covered (buying the further out of the money put vs your short put). Lots of option newbies start by selling options naked--which leads you down the path of a quick and painful blowout when a trade goes against you. At least selling spreads your risk is limited assuming you are doing spreads on a 1 to 1 basis and not ratio spreads (i.e buying 1 option, selling 2 against). Just keep one last thing in mind, just because you're putting a trade on for a net credit, this does not necessarily increase the chances that you will make money on the trade--remember that there is a good reason that the put/call you are selling is worth more that the one you're buying. Vega