What Is A Cash Secured Put

In this post, I want to introduce you to a better way to trade stocks.

I am going to answer the question: what is cash secured put? and much more.

I will show you a better and more efficient way to build a stock portfolio.

An option is a contract where the buyer has the right but not the obligation to buy or sell the underlying asset at a specific price on or before a certain date.

What you are doing is buying a “choice.”

The specific price at which you can buy the underlying asset is called the Strike Price.

The date by which you can exercise your right is called the Expiration date.

The expiration date varies from weeks to years, generally a maximum of two.

If you don’t exercise your right by that date, the option expires worthless.

Each option contract controls 100 shares of the underlying asset.

So, when you buy an option, you must multiply its value by 100.

Here is how an option contract may appear.

When you buy a Call option, you have the right to buy the asset at the strike price chosen.

If you buy the Put option, you have the right to sell the stock at the strike price.

When you buy a CALL option you think and want the stock price to increase in value as you can buy it at a lower price ( the strike price you chose ).

Vice versa, if you buy a PUT option, you want the stock to decrease in value as you can sell it at a higher price.

So, when you are bullish you buy a Call option, when you are bearish on a stock, you buy a Put option.

If you want to go deeper into this topic and learn the basics of options, I strongly recommend watching my complete free course: ” Options trading crash course. “

Click here and register to get the free video course.

It will help you understand deeply all we are going to talk about in this post.

Let’s see now what and how you set up a cash-secured put strategy.

First of all, let me say that this is one of the strategies that I approve of using even if it’s not one of my favorites as I don’t like to own stocks and prefer to trade directly options.

Some strategies are even more efficient than this one and by learning them you can easily make 20-50% per year with very low and controlled risk.

Of course, you must know the only strategies that really work and the right way to use them.

That’s why I created “ Selling Options – The Cash Mchine Course ” where I teach you exactly what I do to be a consistently profitable trader.

Have a look and see what you can learn and achieve with it. Click here.

That being said if you still prefer to trade and own stocks, I highly recommend using the cash-secured put strategy instead of directly buying the stock and I am going to show you why.

Let’s say that you like Coca-Cola stock.

At the moment stocks are trading around 55$ and you think it’s a little bit overvalued and you’d prefer to wait to buy them.

You would feel good owning Coca-cola at 45$.

According to your analysis that is the fair value.

Now, If you were a stock trader, you would just wait to see Coca-cola reach your target price of 45$ but this could take time, months, or, who knows, maybe Coca-cola will never hit that value anymore.

What you can do instead and what even Warren Buffet do is start selling put options with a Strike Price of 45$ expiring in 30 days.

This means that by selling the option you collect a premium of, for example, 0,9$ which is (remember you have to multiply this number by 100) 90$ value.

Now, as you are selling a put option, you have the obligation to buy the stock at the strike price by the expiration day if the buyer exercises his/her right.

In this example, you are selling a Put strike price of 45 meaning that, if Coca-cola drops below your 45$ strike, you are obligated to buy 100 shares of Coca-cola.

It means you must have enough liquidity in your account to buy 100 shares of Coca-cola at 45$. This is 4,500$.

Every broker, to allow you to sell a put option on Coca-cola with a Strike price of 45$ will require you to have 4,500$ cash in your account.

That’s why the strategy is called, Cash-secured Put.

Is it clear? I hope so.

What if Coca-cola drops well below your strike price?

You are still assigned 100 shares of Coca-cola at 45$ even if it is trading, for example, at 30$.

So you are losing money on the stock side but consider that you would have bought Coca-cola at 45$ in any case so it’s not a big deal for you and more, the premium you collected helps you lower the cost bias.

This strategy is relatively simple.

The only point you have to keep in mind is: to apply this strategy only on stocks that you would like to own and choose the strike price at which you would like to buy them.

That’s it, nothing more.

Selling Options is the best way to earn consistent money.

Even the ” Chicago Board of Options Exchange “CBOE “ reports that selling options are one of the strategies that outperform all the others.

Of course, it has risks that you must know and control and if you just apply the strategies that work the best, they can even be less risky than trading stocks or other assets.

Selling options allow you to earn consistent money all year round.

Have a look at what I usually earn by trading only the best strategies.

Here is my real statement video where I show you my results.

In conclusion, I highly recommend you invest in yourself and learn the skills you need to be a profitable trader.

I created the Selling Options – the Cash Machine course just to teach you that.

Stop wasting money and learn the skills you really need.

I wish you all the best.

Max