Josh’s Key Entry Rules for Selling Puts (Cash-Secured)

● Only sell puts on stocks I would genuinely be happy to own long-term if assigned at the chosen strike price (strong fundamentals, good balance sheet, sector I believe in).

● Target a delta range of -0.16 to -0.23 (approximately 16–23 delta). This keeps the position roughly 77–84% out-of-the-money probability at entry—far enough to offer a solid edge while still collecting meaningful premium. I avoid anything higher (closer to ATM) to reduce the frequency of being tested.

● Aim for 14–30 days to expiration (DTE). This sweet spot balances rapid theta decay with manageable gamma risk and gives time for the position to work.

● Choose a strike price that sits below at least two clear levels of support visible on the monthly chart (e.g., prior swing lows, moving averages, trendlines, or round numbers). This adds an extra layer of technical protection against immediate downside breaches. Additional Portfolio & Position Management Rules:

● Keep position sizes small (typically 1–5 contracts per trade) and spread across multiple uncorrelated sectors (e.g., tech, healthcare, consumer staples, energy). Diversification helps ensure that if one sector experiences a sharp drawdown, others may remain stable or even benefit.

● For covered calls (when assigned shares from a put): Only sell them on green/up days to capture better premiums when momentum is positive and the stock is elevated.

Exit & Risk Management Rules: ● Close (buy to close) both puts and covered calls when 50–70% of maximum profit has been realized. This locks in gains early, reduces exposure to late adverse moves, and frees up capital for new trades.

● Always close or roll out positions well before earnings announcements to avoid unpredictable volatility spikes and gap risk.

● Exit (or aggressively manage) positions ahead of major sector-specific catalysts or high-volatility events (e.g., Fed announcements impacting financials, regulatory news in biotech, or commodity shocks in energy).

By consistently applying these filters and rules—emphasizing high-probability setups, technical confluence, diversification, and disciplined profit-taking—I have found that my overall options trades end profitably more than 90% of the time over an extended sample of trades.