How I Use “Naked” Puts to Generate Extra Cash Flow in a Stock Portfolio
If you have a brokerage account (or plan to) and own stocks, bonds, crypto, or other assets, you may be missing out on an untapped income source. The equity in your portfolio can be used to generate cash flow.
Most brokerages like Schwab or Interactive Brokers offer access to margin using a portfolio’s value as collateral. I prefer to generate cash flow from that access to margin without paying any margin interest. How? By selling naked put options.
A “put” option gives the option owner the right to sell 100 shares of a stock at a certain price to the put seller. The put seller gets paid to take the risk. A “naked” put means the seller doesn’t have cash to buy the shares, but can buy them on margin if needed.
A Simple Example of Selling Naked Puts
My goal is to generate an extra 2% return per year using naked puts. If I have a portfolio worth $50,000 invested in index funds, then I would aim to generate $1000 per year ($83 per month) from selling naked puts.
The larger a portfolio is, the less lumpy the cash flow from selling options will be. In a smaller portfolio, I might sell one naked put every other month to meet my target.
