Cash Secured Puts: Some Details on this Technique

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.

  • Once you learn this technique, you'll be amazed at it's potential.

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. Consider selling front-month at-the-money puts on your favorite blue chips when they are temporarily beaten-down in price. 

  • Remember, this is an excellent strategy to use in your IRA. Most good brokerages will allow you to sell cash-secured puts in your tax-deferred account. Most of the author's stock purchaces in his IRA are done this way.

Selling Options: Covered Calls, Cash Secured Puts: Magic Tools For High Stock Returns

Let's Look at a Cash Secured Puts Example: 

Consider Celeste's case: 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

So you see, this can be a lucrative technique to learn and use!

Open an IRA or roll over your old 401k and get up to $600 cash.

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:

More info on Cash-Secured Puts 

Return from Details about Cash Secured Puts to Safe Strategies

Return to Homepage

"You are never too old to set another goal or to dream a new dream".

-C. S. Lewis 

Fund a new account with OptionsHouse and trade FREE for 60 days