Cash secured put stock option trading strategy

What is a cash secured put?

The Greek that we are focusing on is "Vega". Instead of getting crazy and trying to talk a bunch of mumbo jumbo regarding all of the fine intricacies of equity option pricing models. This is option simple, not Option complex.

To make a long story short, the higher the Vega (volatility) the more Benjamin's you get from selling the Put option contract. It's as easy as that. Find a stock you would actually like to own in your portfolio, then sell the amount of contracts that would equal how many shares you would want to own. 100 shares, 200 shares and so on.

By selling the Put, I don't actually take ownership of the stock, but I do get paid for the inconvenience of tying up the funds that it would take to own the stock. No matter what happens, I keep the entire premium.

A quick example: The front month 30 strike put on XYZ corp. is selling for $3.00. I would receive 300$ for every put option contract I sell.

Benefits ~

-receive premium without owning the stock.( The stock does not have to do anything and I am already up 10% with $3.00 worth of downside protection.) um....HELLO! you might want to read that again.

-time decay is on my side (every day that passes by the option looses value. This deterioration of option value, benefits option sellers;) remember, at expiration I will achieve my maximum profit when the short put option expires worthless.

-If assignment does occur, I just bought the stock for Three bucks off the price that everyone else paid who actually purchased the stock, the same time I sold my put. Cant beat that. How is that for strategic.

-Reduce my cost basis to $27.00 from $30.00.(Even if I do get assigned and the stock falls two dollars from when I sold the Put option, I am still up $100. Because I received $300 initially.

-I am never in an uncovered option position because I actually have the funds on deposit to receive the underlying stock.

Important~

This is a really great strategy to use when you actually would own the underlying stock in your portfolio. Due to the fact that if assignment does occur, you will have to buy the stock with the funds secured by your broker when the short put option position was established. Typically a broker will require the strike that is being sold minus the net credit received times 100, to be held on deposit. so if I am selling 1~ 30 strike put for $1.00. I would be required to keep $2,900 available to cover assignment. All brokers are different. Contact your broker for margin requirements & commission details.

Definitely a smarter way to buy stock. Individuals and corporations do this every day to hedge risk and increase profits. Now I am not telling you to go take all of your money and start selling cash secured puts. We are not advisors. Our goal is to educate you and give you an alternate perspective that is tough to come by in a system that can at times be driven by others best interests. It always helps to know your options.

Good luck everyone!!

p.s.~

Always do your own research before buying anything and the only good tips are the ones that you come up with yourself. Happy trading!

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