Course Introduction
The Income Engine & The Safety Switch
Welcome to the world of short puts. You are about to learn one of the most consistent ways to generate monthly income in the stock market. We are going to focus on a powerful Out-of-the-Money (OTM) strategy—a method designed to put the odds of success overwhelmingly in your favour.
However, there is a catch.
In options trading, the 'how-to' is only half the battle. You can pick the perfect strike and the perfect timeframe, but if you don't know exactly how to handle a market crash, one 'Black Swan' event can erase a year's worth of progress in a single afternoon.
Because I am committed to your long-term survival, this course is designed as a two-part experience:
The Engine: In this course, you’ll learn the core strategy: selling OTM puts on the S&P 500 and using our signature Rollout Protocol to stay ahead of market dips.
The Safety Switch: Immediately following this, you must complete 'The Defensive Put-Seller’s Playbook.' While this course gives you the tools to make money, the Playbook gives you the 'Triple-Lock' defense—including the 200-Day Trend Filter and the VIX 35 Emergency Lever—to ensure you actually keep it.
You wouldn't jump out of a plane with just a manual on 'how to fall'; you need to know how to pull the parachute. Consider this course your flight manual, and the Playbook your parachute.
Let's start building your income engine.
The Strategy Edge: 3 Ways to Win
Most investors only make money if the market goes up. With a Short Put, you turn the odds in your favor because you profit in three different market conditions:
Market Goes UP: You keep the full premium.
Market Goes SIDEWAYS: Time decay erodes the option's value; you keep the full premium.
Market Drops SLIGHTLY: As long as the market stays above your "Safety Line" (Strike Price), you keep the full premium.
The "Aha!" Moment: You don't need to be right about the market's direction; you just need to be "not wrong" by a large amount.
Module 1: Core Strategy & Trade Mechanics
The Short Put involves "selling insurance" to the market. You collect a premium upfront, and your goal is for the US 500 to stay above a certain level so you can keep that money.
The US 500 Example (Step-by-Step)
Imagine the US 500 is trading at $6,787. We decide to sell a Put with a $6,400 Strike Price.
The Trade Details:
Strike Price: $6,400 (Your "Safety Line")
Premium (Points): 27.19 points (The price you are paid to take the risk)
Bet Size: $10 per point
1. Calculating Your "Paycheck"
In spread betting, we bet on points. Since you collected 27.19 points at $10 per point, your total profit is:
27.19 pts × $10/pt = $271.90 (Max Profit)
2. Calculating Your "Cushion" (Break-Even)
You don't actually start losing your own money until the market drops more than 27.19 points below your strike.
$6,400 (Strike) - 27.19 (Premium) = $6,372.81 (Break-Even)
3. The Results at Expiry
If US 500 finishes at... | Result | Why? |
6,800 (Market Up) | +$271.90 | Market stayed above your safety line. |
6,401 (Market Sideways) | +$271.90 | Market stayed above your safety line. |
6,372.81 (Break-even) | $0.00 | The drop exactly equalled the premium you were paid. |
6,300 (Market Down) | -$728.10 | Market fell 72.81 points below your break-even. |
Your Next Step: Get Your Free Demo Account.
We highly recommend setting up a demo account with IG Index—the platform we use for all our examples. Use the link below to instantly access their platform and practice with virtual funds. It's the perfect bridge between theory and profitable trading.
'Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.'
Module 2: Probability, Volatility, and Timing
The High Probability of Profit (POP): Why 94%?
The high Probability of Profit (POP) of 94% is a key characteristic of this strategy. This high probability stems from two key factors inherent in the trade's structure:
The Safety Buffer: By selecting an Out-of-the-Money (OTM) strike price ($6400) that is significantly below the current market price ($6787), you build a large buffer. The index only needs to stay above $6400 for the option to expire worthless.
The Breakeven Advantage: Because you collected a premium $27.19, your effective break-even point ($6372.81) is even lower than the strike price. This buffer against adverse price movement is why your POP (94% chance of being above the break-even) is higher than the chance of the strike itself expiring OTM.
In essence, premium selling strategies give you multiple ways to win: the underlying index can rise, stay flat, or even fall slightly, and you still profit.
The Critical Role of Implied Volatility (IV)
Implied Volatility (IV), now at 20.476% in your example, plays a dual role:
The Entry Rule: The best time to place a short put trade is when Implied Volatility is historically high. High IV inflates option premiums, allowing you to "Sell High" and receive a slightly larger initial credit.
The current IV is considered Low so this would not (in relaity) be an opprtune time to place this trade.
The Profit Rule: A subsequent drop in IV will reduce the option's value, allowing you to buy the option back cheaper for a profit before expiry, even if the underlying index has not moved significantly.
The Volatility Filter
The "Fear Gauge" Filter: When to Say Yes (or No)
To get the best "bang for your buck," you need to know when premiums are expensive. We use the VIX Index (often called the "Fear Gauge") to decide if the trade is worth the risk.
Think of the VIX like an insurance premium during a storm. If the weather is calm, insurance is cheap. If a hurricane is coming, insurance becomes very expensive. As a seller of insurance (Short Puts), we want to sell when the storm is brewing!
VIX Level | Signal | Why? |
Above 20 | 🟢 Green Light | Fear is high. Put premiums are "fat." You get paid more for the same amount of risk. |
15 to 20 | 🟡 Amber Light | Normal conditions. Be selective with your strike prices. |
Below 15 | 🔴 Red Light | The market is "complacent." Premiums are tiny. You are taking a lot of risk for very little reward. Better to wait! |
Optimal Timing: The Power of Time Decay (Theta)
Options are wasting assets, meaning their value erodes over time due to Theta (time decay). As a seller, Theta is your friend. The ideal window for selling options is typically around 30 to 60 days to expiry (DTE). Your 37 DTE trade benefits optimally from time decay, which accelerates rapidly as expiry approaches.
Module 3: Risk Management & Survival
High-probability trading is not about being a "winner"; it is about being a survivor. Because the Short Put is "Naked" (unprotected), your losses are theoretically uncapped. This module teaches you how to calculate that risk and, more importantly, how to neutralize it.
1. The Math of a Falling Market
In a Short Put, you start losing money once the US 500 drops below your Breakeven Price ($6372.81 in our example). For every point it falls below that level, you lose your "Bet Size" (e.g., $10).
The Formula:
Potential Loss = (Breakeven Price - Current Index Price) times Bet Size
If the Index falls to 6,300: (6372.81 - 6300) times $10 = $728.10 Loss
If the Index falls to 6,200: (6372.81 - 6200) \times $10 = $1,728.10 Loss
2. The 2% Rule: Your Early Warning System
We never wait for the US 500 to hit our strike price ($6,400). By then, the "steamroller" has already reached us.
The Rule: If the US 500 price drops to within 2% of your strike price, you must take action.
Strike: 6,400
1% Buffer: 128 points
Trigger Price: 6,528
If the market touches 6,528 you stop hoping for a recovery and you Roll the Position.
3. The Lifeline: Rolling Out and Down
Rolling is how professionals "reset" a losing trade. You simultaneously close your current trade and open a new one further away.
Buy to Close: You buy back your Dec 6,400 Put (accepting a small loss).
Sell to Open: You sell a Jan 6,200 Put (a lower, safer strike).
Why this works: * Moving the Goalposts: You just gave the market another 200 points of room to breathe.
Buying Time: You added an extra month for the market to recover.
Net Credit: Because January options have more "time value," selling the new one usually covers the cost of closing the old one.
4. The "Black Swan" Reality Check
A "Black Swan" is a rare market crash. If you "set and forget" this trade, one bad month can wipe out a year of profits.
Scenario | Market Level | Points Below Strike | Financial Result ($10/pt) |
Max Profit | Above 6,400 | 0 | +$271.90 |
Breakeven | 6,372.81 | -27.19 | $0.00 |
Correction | 6,200 | -200 | -$1,728.10 |
Crash (-12%) | 6,000 | -400 | -$3,728.10 |
Why the Math Matters: If you win 9 times but lose $4,000 on the 10th trade because you didn't manage the risk, you are $1,552.90 in the red. We avoid this by using the 1% Rule.
5. At the Finish Line (Settlement)
If you haven't rolled and you reach the expiry date, IG Index settles the bet in cash:
US 500 > 6,400: The bet disappears. You keep your $271.90. The margin is released.
US 500 < 6,400: IG calculates the point difference, multiplies it by your $10 stake, and deducts it from your balance. No "shares" ever change hands.
Defining Risk with the Bull Put Spread
If the table above is outside your comfort zone, you should not trade "Naked." Instead, use the Bull Put Spread.
By simultaneously Buying a cheaper Put at a lower strike (e.g., 6,300), you create a "floor." No matter how far the US 500 crashes, your loss is capped at the distance between the two strikes. This is the smartest way for beginners to start.
'Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.'
Module 4: Platform Execution Guide (IG Index)
Now that you understand the strategy and the risks, here is exactly how to place the trade on the IG platform.
Phase 1: Finding the Market
Open the Options Menu: From the left-hand sidebar of your IG dashboard, click on Options.
Filter by Asset Class: Ensure the Indices button is selected at the top of the main window.
Locate US 500: Scroll down the list to find US 500. Click the small arrow to the right of the name to expand the available expiries.
Phase 2: Selecting the Expiry & Strike
Choose Your Date: From the dropdown list, select the specific expiry (e.g., 30 Jan 26). This opens the Option Chain.
Identify the Puts Side: The screen is split into Calls (left) and Puts (right). Look only at the Puts side for this strategy.
Find the Strike Price: Scroll down the center column until you find your target strike (e.g., 6500).
Phase 3: Configuring the Deal
Open the Ticket: Click the Sell button (highlighted in red) next to your chosen strike. This opens the Deal Ticket on the right.
Verify "Sell" Direction: Double-check that the Sell tab is active (red). Selling a Put is how we collect the premium income.
Set Your Size: Enter your trade amount in the Size box (e.g., $10 per point).
Phase 4: Execution & Monitoring
Check Margin: Review the Margin requirement at the bottom of the ticket. Ensure you have sufficient funds to cover the trade.
Place the Deal: Click the green Place deal button.
Monitor Live: Your trade will appear in the Positions tab. Track your Opening price, Latest price, and live Profit/Loss here.
⚠️ Key Reminders
Check the Label: Always ensure the ticket says US 500 PUT before clicking.
Safety Buffer: We specifically choose strikes below the current market price.
The 30% Margin Rule: Pick your position size based on the margin you are comfortable with. We suggest you never let your total margin exceed 30% of your account value. This protects you from being automatically closed out during a temporary market dip.
Module 5: The Spread Betting Advantages and Product Structure
Tax-Exempt Trading (UK and Ireland)
A highly attractive benefit for traders in the UK and Ireland is the tax treatment of spread betting profits.
IG Index Clarification (Nov 12th 2025):
Options traded within a spread betting account in Ireland are tax free. Profits from spread betting, including options, are not subject to capital gains tax or stamp duty in Ireland. This applies regardless of whether your account is denominated in euro or another currency. There are no extra fees or tax implications specifically mentioned for operating a spread betting account in a different base currency, such as euro.
Disclaimer: This tax-exempt status usually applies to retail traders. Tax laws can change and depend on individual circumstances, so please seek independent tax advice.
The Spread Bet Product Structure vs. Listed Options
The key to the tax status and the nature of the trade is the distinction between the accounts:
Spread Bet Account (Your Trade): In this account, you are not purchasing the physical options contract. Instead, you are trading on the movement in the option’s price through a cash-settled bet. This means you do not have the right or obligation to buy or sell the underlying instrument. Profits and losses are realized as the option’s price moves, and the trade is settled in cash. You are speculating on the price of the option itself, not owning the option contract.
Options Trading Account (e.g., US Options and Futures): This distinct account allows access to US listed options and futures, which come with the full rights and obligations of owning the actual contract (e.g., assignment, physical delivery). This account structure typically has different tax implications.
No Daily Overnight Financing
Options offered by IG are often based on a futures style (Quarterly Bets). For longer-term trades like your 37-day option:
The cost of financing is Built-In to the option's quoted price.
This means there is no separate, visible, cumulative daily interest charge eroding your premium profit, making it a highly capital-efficient way to hold a position for a longer duration.
Strategy Comparison: Risk vs. Probability
Choosing the right strategy depends on your market view and your risk tolerance. At ShareNavigator, we emphasize Probability of Profit (PoP) over "lottery ticket" home runs.
Strategy | Market View | Max Profit | Max Risk | Probability of Profit | Best For... |
Aggressively Bullish | Unlimited | Premium Paid | ~30% - 40% | Fast-moving rallies. | |
Aggressively Bearish | Significant | Premium Paid | ~30% - 40% | Hedging a crash. | |
Short Put | Neutral to Bullish | Net Credit | High | 75% - 85% | Consistent income. |
Neutral to Bullish | Net Credit | Capped | 70% - 85% | Consistent income. | |
Neutral to Bearish | Net Credit | Capped | 70% - 85% | Selling "resistance." | |
Moderately Bullish | Capped | Net Debit | ~50% - 60% | Cheap bullish entry. | |
Moderately Bearish | Capped | Net Debit | ~50% - 60% | Cheap bearish entry. |
Why Credit Spreads Have a Higher Win Rate
A common question students ask is: "Why not just short the stock or buy a long put if I'm bearish?"
The answer lies in the three directions of the market:
Shorting a Stock / Long Put: You only win if the market moves DOWN. If the market stays flat or goes up, you lose. (1 out of 3 scenarios).
Bear Call Spread: You win if the market moves DOWN, stays FLAT, or even RISES SLIGHTLY (as long as it stays below your ceiling). (3 out of 3 scenarios).
By "selling" time and volatility instead of just betting on direction, you turn the math of the market in your favor.
💡 The ShareNavigator Golden Rule
"We don't try to predict the next 500-point move. We try to identify the 300-point range where the market won't go. Trading is not about being 'right'; it's about not being 'wrong' enough to lose money."
🚀 Summary: The Power of the Spread Betting Short Put
The Short Put on a spread betting account is a high-probability, income-generating strategy best initiated during periods of high Implied Volatility on an asset you are bullish on. When executed correctly, it delivers defined risk alongside the tax-exempt and cost-efficient advantages unique to the UK and Ireland’s spread betting structure.
You aren't just trading an asset; you are leveraging a structural advantage to keep more of what you earn.
🚀 Your Pre-Flight Checklist
Before a pilot takes off, they run through a physical checklist to ensure they haven't missed anything vital. As a trader, you should do the same. Before you click that green "Place Deal" button on IG, verify these 5 points:
Is it a PUT?
Check: Mistakenly selling a "Call" instead of a "Put" is the most common beginner error. Ensure the ticket explicitly says US 500 Put.
Is the Strike BELOW the current price?
Check: Look at the current US 500 price. For our strategy, your strike should be 7% lower than the current price. This is your "Safety Buffer."
Is the Expiry ~28 days away?
Check: This is the "Sweet Spot." It gives you enough time for the premium to be worth it, but is close enough that Time Decay (Theta) works quickly in your favor.
Is my Margin under 30% of my account?
Check: Look at the "Margin Required" on the ticket. If this trade pushes your total used margin above 30% of your account value, reduce your Size (£ per point). Remember: 60% is the danger zone.
Is my "2% Rule" alert ready?
Check: Do you know your "Roll" price? (Strike Price + 2%). Have you committed to acting if the market hits that level?
⚠️ The Final Crucial Step: Your Parachute
You now have the blueprints for a powerful monthly income engine. Under normal market conditions, the 7% buffer and the Rollout Protocol are your best friends.
However, professional trading isn't about how you handle 'normal'—it’s about how you survive the 'extreme.'
In spread betting, where leverage is high, a simple rollout cannot fix a 2008-style 'Waterfall' or a 2020-style 'Gap.' To protect your £10k account from the risks of high-margin trading, your next immediate step is 'The Defensive Put-Seller’s Playbook.' In that module, we move from "Pre-Flight" to "Full-Defense" by locking in:
The 200-Day Trend Filter: The macro-shield that keeps you out of the market when the probabilities shift against you.
The VIX 35 Emergency Lever: Knowing exactly when to stop rolling and go to cash.
The 75% Harvest Rule: How to bank your wins and get off the field before late-month volatility strikes.
Don't fly without a parachute. You’ve learned how to start the engine; now let’s make sure you know how to land safely in any weather.
I’ll see you in the Playbook.
🚀 Free Strategy Call
Trading theory is only 10% of the journey. The remaining 90% is mastering strategy application, market psychology, and capital preservation under live conditions.
Don't risk your capital making avoidable beginner mistakes. Leverage the experience of a dedicated trading mentor.
Traditional Short Put Strategy Course
To get a full understanding of sell put options, we recommend that you also get a full understanding of the traditional short put strategy. Click Here to access the course.
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