I get asked this question a lot. I posted this to my discussion group last week and thought I'd share it here also.
Many investing sites will tell you that selling cash secured puts (CSP's) requires a neutral-to-bullish market. That is mostly true, but CSP's also work in down-to-bearish markets.
I've been trading CSP's for more than 13 years, so I've seen my share of down markets, and still made money selling CSP's. If the right underlying, strike, and expiration are chosen, and if adjustments are made when necessary, CSP's can/will work under any market conditions.
The best underlying for CSP's in a down-to-bear market are the broad market ETF's, such as DIA, IWM, QQQ, & SPY. That's because they represent the overall market rather than an individual company's stock. Individual stocks can get hit harder than the overall market and take longer to recover. These ETF's have a long term upward bias, so they will eventually recover and reach new highs.
The best strike is one that has an 80% to 90% percent chance of expiring OTM. This puts the odds in your favor.
The best expiration is 1-2 weeks to give the market very little time to move against you and give you the ability to roll down/out quickly if needed.
Markets rarely go down in a straight line, there are ups and downs, even in a bear market. By keeping your strikes far OTM and your expirations short, you can take advantage of these ups and downs.
Beginning in Apr 2020, after the market crashed due to COVID, the market has been bullish until Jan 2022 when the current bear market started. Comparing the income I generated during the period between Jan-Jul in both 2020 & 2021 vs that same period this year, I generated almost the same amount of income under completely different market conditions.
So, yes CSP's can work in a bear market. This is why I never worry about market direction. I just stick to my trading plan.
