Selling options when volatility is high is a tried-and-tested formula for success in trading. With the right strategy and underlying security, investors can make a lot of money during times of uncertainty. 

However, there’s no such thing as a sure thing when it comes to market movement. We saw that recently when DeepSeek—the Chinese AI model from the company with the same name—threatened the current mainstay models Gemini and ChatGPT by claiming that it can provide the same functionality at a fraction of the cost. This led to an industry-wide sell-off of tech stocks even remotely connected to AI. It may have been an overreaction, sure, but then again, traders hoping for a continuous AI bull run just got doused with a bucketful of cold water. Remember, anything in the market can change at the drop of a dime. 

That’s why, even during times of high volatility, selling options should be done as safely as possible. Let’s take naked puts, for example. Yes, they’re a fast and easy way to earn a credit, but the risk of assignment puts you on the hook if the market doesn’t move in your favor. 

So, today, let me show you a potential naked put trade that has a high degree of safety and two, reasonably profitable. 

What is a Naked Put?

Before we look for a viable trade, let’s go over some basic definitions (as I get a few new option traders now and then). 

A put is a contract that allows the holder or buyer to sell 100 shares of an underlying stock or commodity at a specified price (the strike price) before or at a specified time frame (expiration date). The buyer pays a premium for that right. 

On the other side of the trade, the seller (you) receives that premium and, in exchange, is obligated to buy said 100 shares at the strike price should the buyer exercise their right. The premium received at the start of the trade serves as the maximum profit for a naked put. The objective of a naked put is for the underlying asset’s price to stay at or above the strike price. That way, the option expires worthless and you get to keep the premium in full.

On the other hand, should the underlying asset trade below the strike price at expiration, you'll be assigned and that means buying 100 shares of the underlying asset at the strike price. When selling a put, options brokers require you to keep enough cash or margin to serve as collateral in case you get assigned. 

That’s why some experts say that naked puts are one of the riskiest trades for options. Now, there are some ways I can mitigate these risks.

First, I only sell naked puts on stocks or assets that I would be happy to own - for a long time. That means quality companies, ones that pay consistent and decent dividends, or ETFs like the QQQ or SPY. 

Looking For a Naked Put Trade

Now that we have the definitions out of the way, let’s jump into how and what to look for in a naked put trade. 

For this analysis, I used Barchart’s Option Screener, which allows me to search for potential option trades for different strategies. To access the screener, go to Barchart.com, click on Option at the top, and, for this case, click on Naked Put. 

You’ll be brought immediately to a results screen, which shows potential naked put trades. The default results already provide already a healthy selection, but as I said, I like to balance the safety and profit potential in my trades. So, to fully customize my screen results, I’ll click on Set Filter tab at the top, and I can see the default filters specifically chosen for naked puts. 

I mentioned ETFs earlier, so why not sell a naked put on SPY, or the SPDR S&P 500 ETF Trust? This ETF tracks the performance of the S&P 500, which is a great barometer for the overall market. 

So, to look for naked put trades using SPY as the underlying asset, all I have to do is add the Symbol filter, then type in SPY. I’ll also change the security type from stock to ETF. 

Lastly, I’ll head to the very bottom of the filters list and change the OTM Probability to 70% and above. The OTM Probability filter tells me the chance of this trade expiring out of the money, which leads to maximum profits. But remember, a higher probability of profit means less profit. If that’s not for you, you can change the filter however you like it. 

In any case, this is what my filter screen looks like: 

I ran the screen by clicking See Results and got 15 potential trades: 

The second one caught my attention immediately because it has a high OTM probability and a decent profit. So, let’s use that as an example. 

Trade Breakdown

The screener recommends selling a naked put on SPY with a $577 strike price, which expires on 3/21/2025, about 55 days from when I did the analysis. Traders will pay $4.55 per share for such a put option (at the time of the screen), so once your brokerage filled the order, you immediately receive $455 total for selling the put, less trading fees and commissions. 

Now, even with high OTM probabilities, I still like to set take-profit and stop-loss orders for my trades. In this case, I would buy back the put when it reaches approximately 70% value or when the premium drops to around $1.36, and buy it back to close. That means I'd walk away with around $319 per contract. Of course, this is only optional.  

You might wonder why I’d close the trade on an almost-certain winner. That’s because it’s always good practice to close your short options before expiration. Remember, a market turnaround could happen any time. For me, sometimes it's best to take some chips off the table.

As for the stop loss, I think 1.5x is good here. That means I’ll set the trade to close if the losses reach around $682. That means setting the stop around $11.37. Again, this is good practice, as naked puts have significant downside risks—you never know how much the price could go down, even if it is SPY. 

Final Thoughts

While selling naked puts is inherently risky, you can use the techniques above to trade them safely and take advantage of high-volatility trading environments. However, make sure that you stay on top of your trading, even if you have a take-profit and stop-loss order in place. And, as always, do your due diligence and use available tools to maintain your edge in options trading.