How to Sell Cash Secured Puts - Options Trading Strategy
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- Опубліковано 22 сер 2024
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How to Sell Put Options to Benefit in Any Market
Selling (also called writing) a put option allows an investor to potentially own the underlying security at a future date and at a much more favorable price. In other words, the sale of put options allows market players to gain bullish exposure, with the added benefit of potentially owning the underlying security at a future date and at a price below the current market price.
Call Options vs. Put Options
A quick primer on options may be helpful in understanding how writing (selling) puts can benefit your investment strategy, so let's examine a typical trading scenario, as well as some potential risks and rewards.
An equity option is a derivative instrument that acquires its value from the underlying security. Buying a call option gives the holder the right to own the security at a predetermined price, known as the option exercise price.
Conversely, buying a put option gives the owner the right to sell the underlying security at the option exercise price. Thus, buying a call option is a bullish bet-the owner makes money when the security goes up. On the other hand, a put option is a bearish bet-the owner makes money when the security goes down.
Selling a call or put option flips over this directional logic. More importantly, the writer takes on an obligation to the counterparty when selling an option; the sale carries a commitment to honor the position if the buyer of the option decides to exercise their right to own the security outright.
Best Practices for Selling Put Options
Investors should only sell put options if they're comfortable owning the underlying security at the predetermined price because you're assuming an obligation to buy if the counterparty chooses to exercise the option.
In addition, you should only enter trades where the net price paid for the underlying security is attractive. This is the most important consideration in selling puts options profitably in any market environment.
Other benefits of put selling can be exploited once this important pricing rule is satisfied. The ability to generate portfolio income sits at the top of this list because the seller keeps the entire premium if the sold put expires without exercise by the counterparty. Another key benefit is the opportunity to own the underlying security at a price below the current market price.
Put Selling in Practice
Let's look at an example of prudent put selling. Suppose that shares in Company A are dazzling investors with increasing profits as a result of a new, revolutionary product. The stock is currently trading at $270 and the price-to-earnings ratio is at an extremely reasonable valuation for this company's fast growth track. If you're bullish about their prospects, you can buy 100 shares for $27,000, plus commissions and fees.
As an alternative, you could sell one January $250 put option expiring two years from now for just $30. That means the option will expire on the third Friday of January two years from now, and it has an exercise price of $250. One option contract covers 100 shares, allowing you to collect $3,000 in options premium over time (less commission).
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#OptionsTrading #CashSecuredPuts #SellingPuts
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.
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I am a simple man, I see a new Jake video and I watch it instantly. Thank you for the great content Jake. I think I have learned more from your videos than I have from my MBA classes lol.
Thanks Jackson! Glad you've stuck with me this long and still are gaining value from my content!
Agree. I have a business degree and have invested for the last 25 years but I get a lot out of his videos. He seems like a very decent human to boot. Bravo kid!
Jake, this is by far the best video on cash secured puts I’ve come across. You were very clear, made the content immediately understandable and you basically answered all the questions I had. If I could have asked for one further clarification it would be on the sell to close area as I am still a bit shaky on the actual mechanics of it. What also helped me a lot is that I also use Schwab so the screens were familiar to me. Excellent job!
On god 👍🏼. Great video
I miss your stock analysis videos. You have no idea how much I enjoyed your tutorials!!!!!+
This is an excellent and thorough explanation of selling puts. I have made tens of thousands selling calls, and finally ready to expand into puts. Just entered my first order! Really appreciate your sensible style and the way you cover all possibilities.
When u sell covered calls and price is going down...do u sell or watch it go further ?
@@janice7958 If you decide you no longer wish to hold the stock, you can buy the call back for less than you received in premium, however you may have a loss if you sell the stock. For myself, I try to buy stocks that I plan to keep, so I may well just hold the sinking stock, and allow the call to fully or nearly fully decay to keep the premium. I often cover calls as they near expiration, perhaps with a low cost GTC order. This way I get a jump on selling fresh calls for the next round. However, I will admit that the lower the stock drops, the more difficult it is to profit by selling calls since I want to strike price high enough that I will not lock in a loss if that price is hit and the stock is assigned to the call buyer.
I must say it’s 1:30am EST time in the US and i am binge watching your content ..I’ve studied options for sometime, I came across your platform and it finally makes sense I can’t go to sleep because I’m soo excited to get it .. thank you soo very much!! 🤦🏾♀️😫😂. I will only be selling (Put Options)😊
That was a very thorough explanation about selling CSP’s. I’ve come to expect nothing less from you Captain.
A kid could understand this content. Thank you, it was a pleasure watching your video learned a lot.
Great tutorial was the best to understand of all I have seen previously
@Jake , by far one of the best explanation I have come across, at times I ask myself, are they really trying to share the info in a comprehensive manner , you did an excellent job, all of my questions, concerns were answered, thanks for sharing this info .
so simple to follow. best instructional video.
We are all "long" on you Jake :-)
Wow Jake this is an awesome video and I am grateful to you for remembering to post this video. It helps me even more because like you I also use Schwab. Not only do you educate people which is clearly a strong point for you but you simultaneously understand these concepts fluently when you explain them in plain English. Thank you for all your hard work; be proud of yourself, Jake!
Thanks Matt! Selling puts and calls is a great way to make money with options. It's buying options that get people in to trouble.
I can see why buying calls can cause some trouble potentially and now I will try to learn the downside of buying puts! 👍
This is one of the best videos ive seen explaining this. Thank you.
Great info you're really good at explaining how selling puts work.
Thanks Tony! I appreciate that!
I am new to options and you have been a great help in understanding what I've read. Thank you
Thanks for watching A O!
Been looking for a video like this for 24 hours. Thank you sir.
Thanks Jake, this video was excellent. I've watched other videos on this topic and yours is by far the easiest to understand.
Wow this explained so much in a simple and easy to understand manner. Thanks a bunch Jake
You are very welcome Cody! Thanks for watching!
Amazing videos, you’ve made learning options trading so dang easy
Hey Jake! Thanks for answering my question a few posts ago. Great video this time around, learning a lot, and it's starting to make sense! Keep us posted on that challenge!
Thanks for following along with my series! Cheers RKB!
Selling Cash Secured Puts is one of my strategies ! 🎯
You get paid to buy the stock you want for the price you want! I don't see how anyone can get mad about that. It's a solid strategy.
Do you quickly sell Covered Calls on the ones you are assigned, or do you sell before assignment?
thank you for the great info... by far the best option videos I have seen so far
Thanks man. Really well explained
Best video i've seen about this subject.
Thank you for making the video!
Wow just noticed how many subs you have! Proud to be a sub5k subscriber, nice work keep it up!
Thanks for sticking with me all this time Michael! Yeah, my channel has been taking off this year. Hopefully I can hit 100k subs by the end of this year.
@@JakeBroe@mikescents6237 almost to 500k subs. Well done. +1
Jake, your videos are by far the best especially when it comes to selling put options. I'm curious to know if you have a video that demonstrates theta decay and selling to close to lock in profit. You explanations are stellar and I know you would be awesome on a video like this. Many Thanks! John
Jake….this was perfect.
Good explanation and easy to understand. Thank you for using simple terms to explain this strategy. You got my sub !
You do a great job at explaining complex things. 😃
Great video.. You really explain everything well. Easy to follow for a beginner like me.
Thanks for watching Z Shark!
Highly Recommended & Informative…. 🎉
Great simple video! Thanks for the free education
Just came across your channel when searching for options videos. Really explained it in a way i could understand. Thank you, ill try and work my way through your options videos. Anything you recommend for a beginner just getting started and looking to earn regular cash flow? I have a decent amount of capital in my current dividend portfolio.
This is a great video - thanks!
Good work! Keep the videos coming
Thanks Cory! More Options trading videos coming soon!
Well done Jake !
Thanks Brendan! Cheers!
Very good explanation and simple sir!👍🏽👍🏽👍🏽
11.36 . Harvard should hire you to teach options. You are the best. Ali
Such a good explanation. Thank you!!
So well explained! Thank you!
Thanks!
Thanks for the incredible support Pete! I greatly appreciate it! Cheers!
Can you explain the pros and cons of a csp versus a credit put spread?
Amazing video, thank you for the awesome explanation!
Thanks for watching PO! Cheers!
Yes, a lot of infos kekkeke but Thank you Thank you. I will watch it again and again. I always want to get out my comfort zone and try 1 :) Thanks Jake.
Best of luck Tran! Thanks for watching!
Solid explanation
Great video. I just didn’t fully understand point #5 at the final summary.
Hi thanks for your greats videos, little question : on each cash secured put do you put all your money in one trade or do you keep a percentage in cash (what percentage? ) in order to scale your trades if the stock tanks? Thanks a lot
Great Content....Thankyou and please keep it coming!
Thanks Jeff! More videos coming as soon as I get free time to make them, lol.
very nice informative video! what happens if someone already own 100 stocks and get assigned? what happens to those stocks? Thank you
Great video Jake! I started practicing CSP and your videos has help me so much. I do have a question when it comes to time decay. Previously you have mention to sell put options 2 months out from expiration to collect more premium. However the slide you showed in this video about the time decay of an option it clearly shows that after 30 day period the option decay faster. In thay case wouldnt this work best for us, since we can buy to close at a lower price and collect that premium? Please if you are able explain this further. Thank you Jake
When you talk about the buy two close at the end, is that plus the premium? Lock in profits is plus the premium and the profit the contract has increased to?
Explained well, Thanks!
Thank you. Very useful video with good tips.
Excellent video. Very informative. I'm a little confused about the "Buy to close" part. Can I get out earlier than the 30 days? Can I get out early if the stock drops very close to my strike price?
You can get out at anytime.
If the strike is closer to the stock price then the covered call is valued more than the day you created the contract. So you lose money because you have to pay more to get out.
However. If the stock price is further down than the strike price, the value of the covered calls is lower, so you can close at a lower price and you'll profit the difference.
Great overview. I use street smart edge through schwab and you can set a walk limit order. It will start at the ask price then try and sell, if not it can go down .01 until assigned. I get better fills that way.
Wow, that sounds pretty cool! I always start at the end of the spread and then just change it in the desktop browser every 5-10 minutes if it doesn't fill. But automating that process would be sweet!
@@JakeBroe yeah I used to do the same thing but now it does it for me. I get filled within a minute most times.
@JakeBroe the way you described ITM and OTM at approximately minute 7:49, you described it from the perspective of the Cash Secured Put Option Seller, correct? Otherwise, I think it should be the opposite of what you stated, I might be wrong but I'm asking to seek clarity.
great vid jake!!! thnks
Thank you! Another good tutorial! Please also cover how to cancel the put contract via buying to close.
Hey Kelly! For sure, that can be confusing. But if you "sell to open" a contract and you want out of it before the expiration date, then you must "buy to close" it and then your account will be clear of the original contract. I'll talk more about it in future videos!
Can you tell us about box strategy?
How often do you get lucky when the price of the stock goes down below the strike price but you do not get assigned?
I had COST 327.50 P last week, and the price went down to 322.37, but I somehow didn't get assigned. It was below the "break even price" as the premium for the contract was 3.20
I guess I do not understand Mila. It was below the strike price and it was at expiration? If that happens at expiration, you should always have been assigned.
@@JakeBroe It was a CSP, and the price was below the strike price for a long time, but not at the closing time, as it went up at the last hour. I guess that's the explanation: the closing price. But I thought that the trader who bought the Put could take advantage of it even before the expiration date. Thank you, Jake!
I have a question. I picked buy to close on a sell put option like you said toward the end of video but on my fidelity page it shows negative 37 dollars wheni was up 80 earlier in the day?
For example, if it expires itm, is the premium we keep the same as when we sold? Or does that premium diminish
When executing a CSP, do you choose sell to open in the drop-down box?
What happens if at time of expiration the price is out of the money but the option value has decreased. Do you owe on that negative option value if you choose to let it expire and not buy to close?
so, I do have a question, I recently sold a cash-secured put with a premium of 185. I later bought the put to secure the premium and my collateral, but my premium was never released, and I ended up losing roughly 10 dollars on the contract. Also, the share price wasn't below the strike price, so I am confused about why my premium was negligible.
Your videos are btilliant!
Can you close it before expiration day? Let's say entered cash secured puts today but decided close today
Jake, I'm not sure why your definition for delta is different than what I've usually heard. The delta is the change in the option's price vs the change of the stock's price. A delta of .30 means that the option will go up by $.30 when the stock goes up $1. For % of probability, you could look at standard deviations.
Hey John! Your definition of Delta is correct. It is on the slide I showed and in my video explaining the Greeks. However, people also use Delta as a rough estimate of probability of a contract expiring in the money. Not truly scientific, but a good rough estimate.
Great video! However that VZW example did not age well….
Thank You Jake, I am beginning to understand a lot of this. Question, I believe you planned on selling Covered Calls and Cash Secured Puts for the year. I see you bought a lot of researched Calls to take advantage of a possible spike with the stimulus checks coming out. Is that because the upside is unlimited with the Calls compared to a fixed amount with the Cash Secured Puts or is it that you could use margin to increase your upside potential with the calls while Cash Secured Puts would freeze up your buying power? I am assuming both give you leverage verse buying the stock? I also like how you are buying long calls and or selling short putts and using Theta to your advantage.
Yes, you have it correct. When buying a call, there is unlimited upside, whereas with just selling puts (or covered calls), the most I can make is 100% on the premium I was paid for selling the contract. I'm being super aggressive and pretty risky at the moment, but I just don't see the money in the market running out or drying up anytime before this Fall. So I'm willing to let it all ride by buying volatile call contracts on companies I like.
@@JakeBroe Thank You, caught on some of your other videos also.
How ex dividend affect on selling puts?
I have a question about the cash in Vanguard Fed MM Fund when buying a cash secured put option.
When selling a cash secured put option, does the collateralized funds in the investor’s Vanguard money market account earmarked for the possible assignment of the shares desired continue to earn the dividends/interest until the option has expired or shares of stock assigned?
I'll answer my own question. I telephoned Vanguard and a rep explained that the secured cash portion of one's portfolio will continue to earn any interest/dividends in a Vanguard money market fund.
Awesome video
Thanks Bailey! Cheers!
Hey Jake, boy am I glad you uploaded this video today. I’m new to options and tried selling a put on AAPL but little did I know I can’t sell puts on margin, learned the hard way. (I too also use Schwab)
Assuming I sold most of my positions I can free up the capital to do it via cash, I won’t tho, but my question... ARE ALL OPTIONS TRADE WITH CASH, NOT MARGIN?
I thought you could do option trading on margin, but I guess I was wrong.
No, you can sell a put on margin with Schwab. What level for options trading have you been approved for? I think you have to go to at least level 1 to be able to do this.
@@JakeBroe So I’ve been approved for option level 1 trading with Schwab. My cash investments are about $4,600, where my settled funds are $9,000 and cash + borrowing is $18,100. I tried selling a put for AAPL but wasn’t able to. It would’ve been my first ever option trade, don’t know if that has anything to do with it.
To a strike price of $115.
Hey Jake hope you’re doing well. When you get a chance, please try to make a video on the wheel strategy. Thanks, Matt
Hey Matthew! Yep! Video on the Wheel Strategy is coming next week!
Thanks in advance, Jake! 👍
Does the price have to close below the strike price before your assigned or what if it just drops down and hits your strike price that day but bounces up and closes above the strike price? Or does the contract have to expire below the strike price to be assigned?
Hey JDion, the share price has to close below the strike price at expiration for the contract to be in the money and be exercised. Exercising before then would net lose the buying of the contract money. I talk about this in my next options video.
Have you ever done vertical spreads or straddles? Would you shows us how?
Hey Vlad! More videos on Options Trading strategies are coming soon!
Hey Jake, Brilliant content and im your new subscriber! based on your experience, just wanted to know whats your favorite and most profitable options trading strategy that you would recommend? Thanks mate
Hey Jian! Welcome to the channel! Great to have you with us! I personally think owning stock (or SPY) and just selling covered calls is the best options strategy. It's simple and basically can double your return of the S&P's average year. If people want to combine it with cash secured puts and run the Wheel Strategy, that is great as well!
@@JakeBroe How much returns can you get annually just from buying great stocks and selling covered calls? Because im just starting out my trading journey, and I was thinking of focusing on selling cash secured puts and rolling puts / selling covered calls if getting assigned with stocks.
Hello Jack, thank you for another interesting strategy. It could be as illy question, what is the difference between a case secured put and naked put (SELL PUT). level 1 allows cash secured puts where as you need level 4 for naked puts.
A naked put is when you don't have the money or margin buying power in your account to actually buy the stock if you are assigned at expiration. Brokers don't want to approve naked puts since they can turn very bad very fast for an options trader.
@@JakeBroe I had an impression that we need margin for naked options . Thank you
I would also say that you should sell cash secured puts on red days so you can have a lower strike price. The opposite is true for cash covered calls.
Yep! Solid strategy!
Love the video Jake. I’ve personally had some decent luck with cash secured puts. Delta .30 is what I usually target as well for both cash secured puts and covered calls. Do you usually sell 30-60 days out?
Looks like I commented too soon you covered your time frame toward the end of the video. Lol the annualized return for cash secured puts on CCL was over 70% at one point in 2020.
I like selling for 30 days and if I can capture close to 80% of the value of the contract, then I buy to close and go to my next contract 30 days out. Worst case scenario you forget about it and then are assigned the stock and just hold it. The real money long term is in selling contract, not buying!
@@JakeBroe I have always been a net seller of options. I know that’s what data says is the the side of the contract that has the highest likelihood of profit.
@Jake Broe why not sell 1 or 2 week contracts instead of 30 days?
You should have explained about rollouts that is a strategy I use instead of just BTC your position.
Yep! I can talk about that more in later videos.
Jake, at 5:19, I think your max lost would be 96% on RF for Strike price of 21 if it goes to zero? (2,100 - 84)/2100
Yeah, maybe I explained it poorly. But If I was paid $84 and then I have to pay $2,100 for stock worth $0, then ($2,100-$84)/$84 is my max loss. I lost $2016 with those numbers.
Can you have a stop limit cash secured put? So you buy to close before the stock drops too much?
Yes, you can sell to open and then buy to close for any limit you want should it start going too negative for you.
Newbie ?: So if the trade goes below my strike price at anytime before the expiration date, I get assigned, right? OR the expiration date is the FINAL determination if I get assign or not? Also one other question that I hardly hear anyone youtuber talk about.....can I get out of a option contract at anytime I want to with a "buy to close" or "sell to close"? Win or lose, don't matter I just want to get out for whatever reason scenario.
@Tommy Lee "So if the trade goes below my strike price at anytime before the expiration date, I get assigned, right? OR the expiration date is the FINAL determination if I get assign or not?"
The option BUYER has the right to exercise at any time, at any stock price (even out of the money), before expiration. BUT, it very rarely happens with puts, before expiration. The option buyer does what is financially beneficial to them and exercising before expiration causes them to lose the extrinsic value (time value) of the option premium. They make more money selling their put option rather than exercising it.
"can I get out of a option contract at anytime I want to with a "buy to close" or "sell to close"? Win or lose, don't matter I just want to get out for whatever reason scenario."
Short answer, YES!
Long answer: Always base your choices on whether it is financially beneficial to you. I suggest you not "Buy to close" a cash secured put or a covered call, for a loss. Don't pay more than you received for selling it. Learn to roll the option out to a farther expiration day, for a net credit instead. Most broker trading platforms allow you to do this in one transaction. At the same time you "buy to close" the option for a debit, you "sell to open" a new option with a farther out expiration date that earns you more premium than the debit, so you have a net credit.
@@thomasd5488 Thanks for the explanation, I will be trading option soon when I'm ready. All your video are great, keep it coming. Like and sub already!
@@babygamer405 I did not make this video. I am a person who watched the video and read the comments just like you did.
I'm sure the video maker will appreciate you liking and subscribing.
@@thomasd5488 oh okay. You respond faster than the author lol. 👍
Are you from Canada or USA?
USA
Do you sell cash secured puts on a red day or green day to make more money? Also do you sell when the market is at resistance or support level or trading sideways👍👍
Red. Because puts are seen as bearish so red days increase puts values.
Great videos again. At the end of TIP 3, you mention to sell another cash secured put, if you get assigned. what does that mean?
@
Andrea G. "At the end of TIP 3, you mention to sell another cash secured put, if you get assigned. what does that mean?"
Even when you get assigned 100 shares from the first cash secured put you sold that expired in the money, you can still sell another cash secured put to earn more premium, and possibly get assigned another 100 shares, if you have enough cash to cover it.
That said, I think he misspoke and meant to say sell covered calls on those 100 shares, to earn monthly premiums.
I think he means after you buy the shares, due to the option (put) being exercised by the buyer. You can sell the shares again and sell another cash secured put. You have the cash to secure selling the put since you sold the shares after you bought them. If the shares you bought pay a dividend, you may want to collect the dividend first if the payout date is close. Then you can sell the shares and repeat doing cash secured puts.
He may have meant "sell a covered call" on the shares you were just assigned. This would be doing something called "The Wheel."
First!
You got it Dylan! Cheers!
Hey Jake, I still have my $1000 loss sitting there in my account after following your Sell Put video. For others, beware Sell Puts. Unless you are going to sit there all day and monitor the price until your exercise date. Waiting for Jake to make a video showing when, how, and what to do if the underlying stock is getting close to the Put exercise price. Come on Jake. Stop the Ukraine news review for a couple of days and make this video!
Hey Jake, I am still down about net $750 on one Sell Put following your nice video explanation. But the fallacy in your video is that "You get paid to buy a stock at the price you want to buy it" is not really true. Well I do own the stock now, but the market price was $10 below the strike price when I was assigned. All this happened on the last day of expiration. Because I did not sit there all day watching the stock price (And because you made not mention of doing this) the stock dropped $10 below the strike price. So please take some time out from your Ukraine videos to fix up your video, or make an add on video.
Cry abt it, you knew the risks bud
Very useful video. Thanks Jake
I have a question. I picked buy to close on a sell put option like you said toward the end of video but on my fidelity page it shows negative 37 dollars wheni was up 80 earlier in the day?