🎓 Topic of the Week: When to Sell Puts: Using Breadth, RSI, and Volatility as Your Guide

Selling puts isn’t about being bullish. It’s about being less bearish than the market expects—and getting paid for it.

But to consistently profit, you need more than just a margin account and a hunch. You need context.

Breadth, RSI, and implied volatility aren’t fancy tools. They’re your timing system. Together, they help you avoid selling puts into collapsing markets and instead focus on windows where panic is peaking, premium is rich, and risk is defined.

Let’s walk through each piece of this framework—and how I use it in real trades.

🧭 Breadth: Measuring the Market’s Internal Strength

Market breadth tells you whether stocks are rising together or breaking down under the surface.

Tools like:

• $SPXA50R (percentage of S&P 500 stocks above their 50-day moving average)

• Advance/Decline Line

• McClellan Summation Index

…give you a real-time X-ray of market participation.

If fewer than 20% of S&P stocks are above their 50-day MA, that’s historically means we are entering into a capitulation zone. Combine that with a flattening or recovering A/D line, and it signals that selling pressure may be exhausted—exactly when premium sellers should lean in.

🧠 RSI: Spotting Overreactions in the Short Term

RSI helps quantify emotional extremes. I favor RSI(2) for ultra-short-term readings and RSI(7) or RSI(14) for confirmation.

When RSI(2) drops below 5 on a broad index or quality stock, it’s not a signal to blindly buy—it’s a cue to look closer:

• Is breadth showing signs of stabilization?

• Is IV elevated?

• Are we in a seasonal or macro environment where mean reversion is likely?

Used properly, RSI is the emotional compass that tells you when fear is overdone—giving you an edge in selling downside protection.

🌪️ Implied Volatility: When the Market Pays You to Take Risk

Options pricing reflects future uncertainty. As fear rises, so does implied volatility—making puts more expensive.

But don’t chase raw IV numbers. Context is key.

• IV Rank > 40: Implied volatility is elevated relative to its past 12 months.

• IV Percentile > 50: Volatility is higher than it has been more than half the time.

These metrics tell you when the market is paying up for insurance. As a premium seller, that’s your payday. When IV is high, and the signals above align, you get better payouts for the same—or lower—risk.

🧱 Pulling It All Together: A System for Selling Puts with Confidence

Here’s how I time short puts using this framework:

When all three align, I sell puts—typically on ETFs or stocks I wouldn’t mind owning outright.

But here’s the key: I don’t sell puts just to collect premium. I use them as step one in a larger strategy.

That’s where the Wheel comes in.

🔁 From Short Puts to Covered Calls: The Wheel in Motion

The Wheel Strategy is a systematic way to sell puts with a plan. It’s simple, rules-based, and incredibly effective when layered with the indicators above.

Here’s how it works in practice:

1. Sell a cash-secured put on a stock you’d like to own.

2. If the stock stays above your strike, keep the premium and repeat.

3. If you’re assigned shares, transition into step two…

4. Sell a covered call against the stock—ideally in a slightly overbought, lower-IV environment.

5. If the stock gets called away, you realize a gain and reset the cycle.

Each loop through the Wheel collects income, lowers your cost basis, and builds discipline into your trading.

In my own portfolio—and within The Income Foundation, my put-selling and Wheel-based income service—I follow this process with full transparency:

• Trades are sized appropriately.

• Entry signals are based on breadth, RSI, and IV.

• Adjustments are planned before the trade is placed.

This isn’t a speculative approach. It’s a repeatable framework that combines probability, technical context, and discipline.

🧪 Real Example: The October Washout

Let’s go back to October 2022.

• Breadth: $SPXA50R fell under 15%

• RSI(2) on SPY dropped below 2

• IV Rank spiked to 60+

Fear was peaking. Traders were selling anything not nailed down.

That week, I sold a cash-secured put on SPY—30 delta, 45 DTE. The premium was 2.5% of notional, and the break-even point sat well below the recent low.

It expired worthless two weeks later after a sharp rebound.

But more importantly, that trade followed the same rules I use across the board:

• Wait for the right conditions

• Size small enough to stay comfortable if assigned

• Have a plan for what comes next (covered calls)

This is how you build wealth through boring trades—and why the framework matters more than any single pick.

🎯 Final Word: Don’t Trade Blind

Selling puts is powerful, but the edge lies in context.

If you’re using breadth, RSI, and volatility as your guides, you’re not guessing. You’re acting with a framework—and that’s how consistency is built.

Whether you use this strategy occasionally or, like I do in The Income Foundation, apply it systematically, the goal is the same:

• Avoid low-probability environments if possible.

• Get paid to take calculated risk.

• Use assignment as an opportunity—not a problem.

The best trades often feel the most uncomfortable. But with the right tools, you’ll know when discomfort is actually your edge.

📬 If you enjoyed this breakdown, don’t miss next week’s Educational Corner in The Option Premium—your go-to source for clear, actionable options education.

Probabilities over predictions,

Andy Crowder

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