Hey Traders,
Of all the trades I do, Naked Puts are probably the most controversial. When I first tell folks they can collect cash just for making a promise, they light up.
Who wouldn’t want to pocket some cash upfront, right?
But as soon as they find out there’s a flip side — that they’d have to buy 100 shares if the stock falls below the strike price — they start getting cold feet. “But Jack, what if it falls below that price… and then keeps falling?”
They always imagine the worst case scenario.
Well, today, I’m going to break down one of these “scary” trades — a real trade I did earlier this year with stock ticker VRT.
As with all my trades, this wasn’t just some random pick — VRT had been on a beautiful, nearly perfect six-month trend.
The Setup
On May 28th, VRT was trading around $104.60.
I decided to sell a naked put with an expiration date of July 5th and a strike price of $97.50 — which was almost 7% below the stock’s current price.
My members and I collected $2.45 in premium for selling that put.
In simple terms, that means I pocketed $245 (since each option covers 100 shares) just for agreeing to buy VRT at $97.50 if it dropped below that level by the expiration date.
Now, here’s where a lot of traders get jittery.
But let me show you how this trade actually played out and why, even if things don’t go perfectly, we can still make it work.
The Trade
Fast forward to July 5th, and VRT had dropped to about $92. The trend didn’t hold up like we thought, and we were assigned the stock at $97.50.
Now, this is where most traders would panic. But with our strategy in play, we weren’t sweating it.
Why? Because that $2.45 premium we collected up front, immediately lowered our cost basis to $95.05.
So, here we are, sitting on 100 shares of VRT at an adjusted cost basis of $95.05. Not the best-case scenario, sure, but we’ve still got moves to make.
Turning a Downturn Into Income
The following Monday, July 8th, we sold a covered call on those 100 shares, setting the strike price at $97.50 with an expiration date of August 16th. This time, we pocketed a solid $7.20 in premium, or $720.
That’s where the magic of this strategy kicks in.
That $7.20 brought our cost basis down further, from $95.05 to $87.85.
We’re now “in” the stock at a much lower price than when we first started, giving us some serious breathing room.
August Rollout
By the time August 16th rolled around, VRT had dropped to about $80, which meant our covered call expired worthless.
Now, some folks might see this as a disappointment, but in our playbook, that’s a win. It means we keep the $720 premium, and we’re still holding our 100 shares of VRT.
We turned right around the following Monday, August 19th, and sold another covered call, this time with a $90 strike price and an expiration of December 2nd.
This call brought in another $6.10 in premium, adding $610 to our cash pile and reducing our cost basis further to $81.75.
The Current Situation
So, here we are in early November, and VRT has bounced back. After finding its bottom, it’s climbed back up and is now sitting around $106.
Let’s look at the total income we’ve pocketed during this trade:
Between selling that first naked put and the two covered calls, we’ve collected $1,575 in income — that’s without even getting “called out” of our shares.
Final Thoughts
This trade is the perfect example of why I don’t lose sleep over these “worst-case” outcomes.
Sure, nobody likes to see a stock go down after they buy it. But when you have a strategy that brings in income, regardless of what the market throws at you, you realize these “worst-case” scenarios aren’t all that bad.
Naked puts and covered calls aren’t about perfection; they’re about playing the odds, stacking up small wins, and turning tricky situations into profitable ones.
That’s how you stay in the game, and that’s how you win.
Trade well,
Jack Carter
P.S. The election is tomorrow and the next day, I’ll be live with Nate Tucci and 3 other market pros giving you exactly what you need to know about the post-election market reaction. Save your spot right here!
