Selling cash secured puts can be done for a variety of reasons and across a wide spread of time frames. Some folks sell puts far out-of-the-money simply to obtain income. Others sell them with the full intention to acquire the stock cheaper - and be paid to do it. If income is your only goal, then selling far out-of-the-money puts with a month or less to go until expiration makes good sense. On the other hand, if you are in no hurry and want to by an issue you want to own - but at a much cheaper price - then perhaps selling options several months out can make sense.
Let’s Look at an Example:
Remember Phoebe from Phoebe, Craig and Mary? Let’s say she has accumulated $20,000 in her brokerage account. XYZ is currently at $10/share. She has been eyeing the options tables for XYZ and sees that she can sell next month’s $5.00 strike-price XYZ put for $0.25. Because she has $20,000 in idle cash she can afford to sell up to 40 puts. She has noticed that XYZ has stayed in a range above $5/share for the last two years. She likes her odds on this strike price and decides to sell 10 contacts of next month’s XYZ 5’s, using one-quarter of her idle cash to secure this put sale.
Let's do the math:
Sell 10 Puts at $0.25. 10 Puts x 100 shares/put x .25/put = $250 premium received (before commissions).
If XYZ is above the strike price at expiration: She keeps the $250 and has generated this in about one month’s time
If XYZ is below the strike price at expiration: She will be automatically buy 1000 shares XYZ at $5/share
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Never Buy Stock Outright! Sell puts instead.
I almost never buy a stock outright. I prefer to sell puts to get into a position. If I don't get the stock I get to keep the money I collected when I …
Thinking about Trying This Idea on Put Selling Not rated yet
After looking over your site, I have been considering using my cash savings of over $50,000 to sell very far out-of-the-money cash-secured puts. This will …
Additional Resources: Cash secured put writing is a commonly used options strategy. You can read about it from many other sources. I can recommend the following link for more information: