beginners corner

Selling Cash-Secured Puts: Multiple Applications: Part I + Tuesday’s Webinar Registration Link

Selling cash-secured puts is a low-risk option-selling strategy where the seller undertakes the contractual obligations to buy shares at the strike price, by the expiration date. In return for undertaking this obligation, an option premium is collected. There are many ways these trades can be crafted, and this article will provide an overview of several of these applications. This is part I of a 2-part series which will be concluded in the next blog publication.

Practical applications of selling cash-secured puts

–Traditional put-selling

–PCP (wheel) strategy

–Buy a stock at a discount instead of a limit order

–Ultra-low-risk put strategies

  • Delta
  • Implied volatility

Traditional put-selling

After selecting an elite-performing stock (or ETF), an out-of-the-money cash-secured put is sold, agreeing t buy the shares at the lower strike by the expiration date. Here are the option-chain and initial trade entries & calculations using the BCI Trade Management Calculator:

ETSY Put Option-Chain

ETSY: Trade Entries into the Trade Management Calculator

ETSY: Initial Trade Calculations

  • Yellow cells: Breakeven price points
  • Brown cells: Initial 29-day returns and purchase discount amount, if exercised

The PCP (Put-Call-Put or “wheel”) Strategy

Strategy protocol

  • Sell an OTM cash-secured put
  • If no exercise at expiration, use the freed-up cash to then secure another cash-secured put
  • If the put is exercised, write a covered call, ITM for a defensive posture or OTM for a more aggressive position
  • If the covered call is not exercised at expiration, write another covered call for the next contract cycle
  • If the covered call is exercised, use the cash from the stock sale to then secure another put sale

Graphic representation of PCP

The PCP Strategy

Discussion

There are multiple ways we can implement selling cash-secured puts. This article provided an overview of 2 such applications. In our next publication, buying a stock at a discount and 2 ultra-low-risk methodologies will be discussed.

Premium Member Benefits Video: This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here.

For video explanation, click here.

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Dear Alan:  Received your latest book, wow!!!. Let me borrow a legal phase “your newest book is wonderfully ON POINT”  As soon as it arrived, I started reading it and I couldn’t put it down.  You are a wonderful, blessed author!!  I have not been blessed with the ability of a “fast reader”.  My wife says I read slow but remember what I read.  Thanks for the color in the text, something missing in most books.  When I was a high school student I fell in love with Printing and thought it would be my profession until the computer world put a damper on that thought.  But I understand what it takes to put color into a book signature and why most publishers stay with only black ink.

Your educational writings have created a new “Covered Call Student”.  Thank you for your teaching.

Sam

Upcoming events

1. Wealth365 Investor Summit

Tuesday July 11th 10 AM ET – 11 AM ET

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

  • Normal to bull markets
  • Bear and volatile markets
  • Low interest-rate environments

A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

July 11th 10 AM ET – 11 AM ET

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

  • Normal to bull markets
  • Bear and volatile markets
  • Low interest-rate environments

A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

Register for free here.

Presentation time: This Tuesday, July 11th 10 AM ET.

2. Orlando Money Show Live Event

October 29th – October 31st

Details to follow.

3. AAII Orange County, California Chapter

Saturday November 11, 2023

Details to follow.

Alan speaking at a Money Show event**********************************************************************************************************************

About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

7 Responses to “Selling Cash-Secured Puts: Multiple Applications: Part I + Tuesday’s Webinar Registration Link”

  1. Barry B July 8, 2023 10:21 pm
    #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 07/07/23.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    https://www.youtube.com/user/BlueCollarInvestor

    Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as the membership remains active.

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  2. Roni July 9, 2023 2:15 pm
    #

    Alan,

    As always, your article is great.

    My issues with CSPs are the following:

    If I buy a stock that I like and sell an OTM call instead, I am buying it at a discount and will get additional profit if exercised, which seems to be a better risk/reward proposition.
    On the other hand, if I sell a CSP on that stock, I am limited to the strike amount and will be holding a loser if exercised.

    Of course, there are the exit strategies in both cases, but I feel they are more effective when buy/writing.

    Is there something wrong with my reasoning?

    Roni

    • Alan Ellman July 10, 2023 1:02 pm
      #

      Roni,

      Every strategy has its pros & cons.

      One important similarity between covered call writing and selling cash-secured puts is that both have multiple exit strategy opportunities that assist in mitigating losses.

      I prefer covered call writing in normal (market up 8% – 10% per year) and bull market environments, which allows us to sell out-of-the-money calls and have 2 income stream potentials (option premium + share appreciation up to the OTM strike).

      I favor cash secured puts in bear and volatile market conditions which will allow for cash flow even when share price declines down to the OTM put strike.

      We can also integrate both strategies in bear and volatile markets using OTM puts and ITM calls (PCP strategy):

      https://www.thebluecollarinvestor.com/using-the-put-call-put-pcp-strategy-to-create-downside-protection-on-steroids/

      I have multiple option-selling portfolios. Each month I use both calls and puts, Monthlys and Weeklys.

      Whichever strategy approach we take, that 3rd skillset (position management) must be an integral part of our system.

      Alan

      • Roni July 10, 2023 2:30 pm
        #

        Thank you Alan for your clear explanation.

        Roni

  3. Elliot July 10, 2023 12:52 pm
    #

    Alan,

    I am new to options and see you have a lot of information on covered call writing and cash secured puts. Can you point me to the best place to get started.

    Thank you.

    Elliot

    • Alan Ellman July 10, 2023 4:08 pm
      #

      Elliot,

      I am a firm believer that options education should start with covered call writing. In my humble opinion, it is the most intuitive strategy for beginning retail investors, low risk and eligible for self-directed IRA accounts (many also allow cash-secured puts).

      If you haven’t read any of my books or watched any of my online video courses, start with our free beginner tutorial for covered call writing:

      https://www.thebluecollarinvestor.com/beginners-corner/

      Enter your email address and then “let me in”

      Alan

  4. Alan Ellman July 11, 2023 4:58 pm
    #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as membership remains active.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://youtu.be/EXMO-KwZuJs

    Alan and the BCI team