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Tom Preston's Simple Rule for When to Cut a Losing Short Put
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Chapters4 segments · tap to seek
ticker lesson
Breakdown
0:00lesson
Short put trade basics
- Short put is bullish trade
- Collect credit for selling put
- Profit if stock rallies
- Can expire worthless if stock above strike
2:09lesson
Exit strategy for losing short put
- Use multiple of credit to decide exit
- Loss 2x credit = 1.00 if credit is 50 cents
- Loss 1x credit = 50 cents
- Loss 3x credit = 1.50
4:31lesson
Example of 2x credit loss calculation
- Example with $22 stock and 50 cent credit
- Buy put back at $1.50 for 2x loss
- Buy put back at $1.00 for 1x loss
- Buy put back at $2.00 for 3x loss
6:52lesson
Estimating short put loss using strike prices
- Look for highest strike put near loss price
- Stock drop of $1.50 leads to 22 put being in the money
- 22 put becomes similar to 23.5 put
- Use this to estimate when to close trade
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