How to Sell Put Options for Monthly Income Without Chasing Premium
How to Sell Put Options for Monthly Income — Without Chasing Premium
Most traders get excited about selling puts for one reason:
The premium.
They see a trade paying $300, $500, maybe $1,000 and immediately start doing mental math.
“Man, if I do this every month…”
😂
That’s how people get themselves in trouble.
At Mattress Money, we don’t start with the premium.
We start with the stock.
Because when you sell a put option, you’re not just collecting money.
You’re agreeing to potentially buy 100 shares of stock at the strike price.
That means the most important question isn’t:
“How much does this trade pay?”
It’s:
“Would I actually want to own this stock at this price?”
That one question changes everything.
What Is a Put Option?
A put option gives the buyer the right to sell a stock at a predetermined strike price.
When you sell that put, you collect premium in exchange for taking on the obligation to potentially buy the shares.
Let’s say a stock is trading at:
$100 per share
You sell the:
$90 put
And collect:
$2.00 per share
Since one standard options contract represents 100 shares:
$2 × 100 = $200
If the option expires worthless, you keep the premium, before fees and taxes.
If you’re assigned, you may be required to buy:
100 shares at $90
But because you already collected $2 per share, your effective cost basis becomes:
$90 - $2 = $88
That’s why one of the easiest ways to understand selling puts is:
You’re potentially getting paid to name your price.
Why Investors Sell Put Options
There are two main reasons.
1. Generate Premium Income
The first reason is obvious.
Cash flow.
When you sell a put, you receive premium up front.
If the stock stays above your strike price and the option expires worthless, you may keep that premium.
That’s attractive.
But don’t confuse attractive with risk-free.
The market doesn’t pay you premium just because it’s feeling generous.
Premium is compensation for risk.
The higher the perceived risk, volatility, or uncertainty surrounding the stock, the more premium may be available.
So whenever you see a fat premium, don’t just ask:
“How much can I make?”
Ask:
“Why are they paying me this much?”
Keep your antennas up.
2. Buy Stocks at a Lower Price
This is where put selling gets really interesting.
Let’s say there’s a stock trading at $100.
You like the company.
You like the long-term story.
But you don’t want to pay $100.
You’d rather own it around $90.
Instead of chasing the stock, you could potentially sell a $90 put and collect premium while you wait.
If the stock stays above $90?
You may keep the premium.
If it falls and you’re assigned?
You buy the stock at the price you already decided you were comfortable paying.
That’s a much more strategic way of thinking about the trade.
Mattress Money Rule: We Don’t Chase ’Em — We Replace ’Em
This is one of our core rules.
When it comes to stocks, we don’t chase ’em — we replace ’em.
If a stock runs away from us, we don’t panic.
We don’t FOMO.
We don’t decide that suddenly we’re willing to pay any price just because everybody else is making money.
There are thousands of publicly traded companies and ETFs.
Another opportunity will come.
Another setup will come.
Another stock will come.
And if one stock gets too expensive, too volatile, too extended, or no longer fits our setup?
Replace it.
That same rule applies to selling puts.
Do not sell a put because you’re desperate to get into a stock.
Sell the put because:
you like the company
you like the strike
you like the setup
you understand the risk
you can afford assignment
the trade fits your system
If those things don’t line up?
Move on.
We don’t chase ’em. We replace ’em.
Stock First. Strike Second. Premium Third. Risk Always.
This is probably the most important rule in the entire article.
Stock first.
Would you actually want to own this company?
Do you understand the business?
Do you believe in the long-term opportunity?
Is the stock technically healthy?
Is the company financially strong?
Strike second.
At what price would you genuinely want to buy it?
Not:
“Which strike pays me the most?”
Instead:
“What price makes sense for me?”
Those are two completely different questions.
Premium third.
Once we know the stock and strike we want, then we look at the premium.
That keeps the premium in the proper place.
It is part of the trade.
It is not the reason for the trade.
Risk always.
You have to understand what happens if the trade goes against you.
Because if a stock collapses far below your strike, the premium you collected may be small compared with the loss in the stock.
Premium helps.
It does not erase risk.
Use the Mattress Money 3D System
Before entering any options position, we want to think through:
Direction. Destination. DTE.
Direction
What direction is the stock moving?
Bullish?
Bearish?
Sideways?
Is the overall market supporting the trade?
Is the sector strong?
Is institutional demand present?
Selling puts generally makes more sense when the directional setup supports the strategy.
Destination
Where could the stock realistically go?
Where is support?
Where are major moving averages?
Where is the next likely price level?
The goal is not to randomly pick a strike.
The goal is to select a strike that lines up with your thesis.
DTE
How much time does the trade have?
Shorter-dated options may decay faster, but they can also give the trade less time to recover from a sudden move.
Longer-dated positions give the thesis more time, but they behave differently and may tie up capital longer.
Time matters.
Always.
Know What Kind of Market You’re In
At Mattress Money, we classify markets into four basic environments:
Bull
Trending higher.
Bear
Trending lower.
Snake
Sideways or range-bound.
Gator
Sideways, choppy, and volatile.
Why does this matter?
Because options strategies behave differently depending on the environment.
Selling premium in a calm sideways market is not the same as selling premium while a stock is falling apart.
A strategy doesn’t exist in a vacuum.
Market conditions matter.
Implied Volatility Matters Too
Implied volatility tells us how much movement the options market is expecting.
Higher IV often means higher option premiums.
That sounds great.
Until you remember:
Higher premiums can come with higher expected risk.
That’s why we don’t automatically treat a high premium as a good trade.
At Mattress Money, we want to understand whether implied volatility is high or low relative to the stock’s own recent history.
Context matters.
A 40% IV might be high for one stock and completely normal for another.
Example: Selling a $90 Put
Let’s put the whole thing together.
Stock price:
$100
Strike price:
$90
Premium collected:
$2.00
Premium received:
$200
Potential purchase obligation:
$90 × 100 = $9,000
Effective cost basis if assigned:
$90 - $2 = $88
Now we have real numbers.
The next questions are:
Would you want the stock at $88?
Can you afford to buy 100 shares?
What happens if the stock drops to $80?
What happens if earnings are next week?
What’s your management plan?
Now we’re thinking like traders instead of tourists.
The Biggest Mistake Put Sellers Make
Chasing premium.
It happens all the time.
A trader sees one stock paying $150.
Another one is paying $400.
Guess which one gets their attention?
The $400 trade.
But maybe the reason it pays $400 is:
earnings are tomorrow
volatility is exploding
the stock is breaking support
the company just issued bad guidance
the sector is falling apart
the market expects a huge move
That bigger premium may not be a better opportunity.
It may simply be a bigger warning sign.
Again:
Keep your antennas up.
Another Mistake: Selling Puts on Stocks You Don’t Want
This one drives me crazy.
People will sell puts on some random high-IV stock because the premium looks good.
Then they get assigned.
Now they’re sitting there owning 100 shares of a company they never liked.
That’s backwards.
If you wouldn’t buy the stock outright…
Why would you sell a put that could force you to buy it?
That makes no sense.
The Mattress Money Put-Selling Checklist
Before selling a put, ask:
Do I actually want to own this stock?
What price would I be happy buying it at?
What direction is the stock moving?
Where is support?
What is the broader market doing?
What is implied volatility telling me?
Are earnings or major catalysts coming?
Is the option liquid?
What is my break-even?
Can I afford assignment?
What is my exit or management plan?
If you can’t answer those questions, you probably shouldn’t be in the trade yet.
Coach Micah’s Take
I like selling puts because it gives investors another way to put their capital to work.
You can potentially generate premium.
You can potentially buy stocks at prices you already wanted.
And you can turn waiting into a strategy.
But the premium is not the opportunity.
The setup is the opportunity.
The company matters.
The price matters.
The market matters.
The strike matters.
The volatility matters.
The timing matters.
And risk always matters.
So remember:
Stock first.
Strike second.
Premium third.
Risk always.
And when the stock gets away from you?
Don’t get emotional.
Don’t start chasing.
When it comes to stocks, we don’t chase ’em — we replace ’em.
That’s Mattress Money.
More Money. More Options.
