Saturday, November 6, 2010 EST

With five days until expiration we used the Expert Option Search to find short term naked put trades with the goal of earning option income without assignment.

Before we continue let us review some terms used in the Expert Option Search.

  • Downside Protection: DSP is defined as how far a stock would have to fall before the option position was underwater.
  • Return on Investment: ROI is the expected return based on the monies invested in the covered call or naked put trade.
  • Probability of Assignment: POA represents the likelihood that an option seller will be assigned the stock (or have the stock called away) when the option expires. The goal with short term naked put trade as discussed here is to sell options that will expire worthless so the lower the POA the better.
  • Out of The Money: OTM is a common term that means how far the strike price is away from the stock price.

The settings we used for this search were Option Expiration Date of 11/12/2010, stock price of $1 to $50 a share, and a return of investment (ROI) of at least 1%. 

 It may seem that looking for a 1% gain is low but consider we are attempting to gain 1% on monies invested for 5 trading days.