Naked Puts are one of my favorite strategies.
As you might know if you’ve been following me for any length of time, nearly every strategy I use starts with finding a trending stock.
When I use the naked put strategy what I’m doing is selling an out-of-the-money put on a stock that has been in a long-term bullish trend.
The idea is that if a stock is strongly trending higher, I’m going to be able to collect instant cash (called premium) in exchange for a promise to buy that stock if it falls to a certain price, known as the strike price.
When I tell people how much money I’ve made over the years using the naked put strategy, their eyes go wide.
But then the question inevitably comes: “But what happens if you get assigned?”
It never stops amazing me how worried people get about being assigned a stock.
It’s almost like they think you can collect money forever without ever having to fulfill your end of the bargain.
When you’re doing naked puts the right way — using only the most strongly trending stocks — that’s what happens most of the time.
But no strategy is perfect. And once in a while we do get assigned.
But don’t worry. It’s not the end of the world.
Let me show you — Here’s a chart of stock ticker VRT, a stock that was in a very long bullish trend for over a year.
Here you can see how it performed from May 2023 to July 2024:
As you can see, the stock was going up virtually the entire time — especially after it really picked up steam in October 2023.
That’s what led me to pick this stock for a naked put trade back about 6 weeks ago on May 28.
We sold a 97 Put for $2.45.
That means that we collected $245 ($2.45 x 100 shares) in exchange for a promise to buy VRT if it fell below $97 by July 5.
At the time, it seemed really unlikely. After all, VRT had been in a strong bullish trend for more than half a year.
And our 97 strike price meant that VRT would have to fall over 11% from its 109 price at the time.
But as luck would have it, that very same day, VRT decided to end its long bullish run.
See, trends are a great way to spot a strong stock — but they’re not perfect.
Sometimes bad news will come out… sometimes its a poor earnings report or forward guidance…
Sometimes it’s nothing at all to do with the stock… Sometimes the market just sees better opportunities somewhere else, and so the money flowed out of VRT and into some other stock.
Whatever the case is, VRT’s long bull trend was broken that day… and the stock started going down.
It took a but over a month, but on July 1st it bottomed out, going as low as 82.86, before closing the day at 86.60.
On or around our July 5th expiration we were assigned the stock at 97.
Now, this is the worst case scenario for anyone who’s ever asked “But what happens if you get assigned?“
Because now you own this stock at 97 when it’s only worth 86.60.
But listen. I’m the furthest thing you’ll ever find from a gambler.
I’m not out there using this strategy, hoping and praying that the stock doesn’t drop.
Because some of my biggest wins have come from being assigned a stock.
So what do I do?
Well, I own VRT at 97 and by expiration day, the stock had already bounced up to 92.
Right off the bat, before I could even do anything, that $10 gap between what I owned VRT at and what it was worth had already closed by $5.
How do we close the rest of that gap?
This morning we turned around and sold a covered call: The August 16th 97.50 call for 7.20.
That means we collect $720 up front. Let’s do the math so you can see how beautiful this strategy is:
97 per share – 2.45 = 94.55
94.55 – 7.20 = 87.35
Barely a few days after being assigned VRT at 97 per share, our cost basis is already down to 87.35, meaning that at VRT’s current price of 92.06, we’re already up 4.71 per share or $471.
And if we get called away on or before August 16th @ 97.50, here’s how that works out:
97.50 / 87.35 = 10.15 per share or $1015 on the trade.
And if we don’t get called away on August 16th? That just means we keep selling covered calls until we do.
That’s why this strategy is so powerful: First off, you’re starting with a strongly trending stock.
Strongly trending stocks are likely to continue on their bull runs.
But even if they don’t, you’re not going to see these stocks go to zero. They might take a bit of a dip, but they usually pick up with that strength soon enough.
And that’s the key part of the whole strategy that I want you to focus on:
It’s not about avoiding being assigned, it’s about knowing what to do when you are.
Because being assigned isn’t the end of the road — it’s just another step in the process.
By selling covered calls, you can reduce your cost basis and set yourself up for future gains.
So, the next time you’re worried about being assigned, remember this: with the right strategy, it can actually be a great opportunity.
Keep your focus on finding strong, trending stocks and always have a plan for what to do next.
Trade well,
Jack Carter
P.S. Speaking of strongly trending stocks… one stock I’ve gone back to again and again is AVGO.
It’s been trending so strongly that the stock is about to have a 10-for-1 stock split. And I’m going to show you EXACTLY how I plan to play it. Click here to register your spot!
