How Cash-Secured Puts Really Work

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Tobias discussed How Cash-Secured Puts Really Work. Here’s an excerpt from the episode:

[Tim] Absolutely. So it’s a short sample. I mean, I think we launched 45, 50 days ago, something like that.

And we’re really thankful for all the support that we’ve gotten. But one of the things that Toby and I are big on is transparency and showing the trades, the results of them. And there’s going to be trades that go bad.

There’s going to be trades that go good. But we’ll continue to walk you through the process on how to manage those and get going. So let’s go ahead.

So what we do. So just a basic overlay. So we sell options on good businesses that we’d be happy to own and get paid to wait on.

So the main strategies that we use are cash-secured puts, covered calls, and then the wheel strategy. So on a cash-secured put, we’re going to pick a price below today’s price that the stock’s available at. We could do it at the money.

We could even sell puts in the money. But generally, they’re below the price that they’re currently trading at. And we only do it on stocks that we’d want to own at a price we’d want to own it at.

And when we sell that put, we collect cash premium upfront. So that’s what’s in it for us. We collect the premium upfront.

And we’re just saying, hey, we’re willing to buy this stock at that price. There’s two honest outcomes. So heads or tails.

Heads, if the stock expires above the strike price that we sold the put at, we keep the premium. And that’s it. We target double-digit returns.

And that’s all she wrote. If the stock is below the strike price at expiration, then we’re going to end up owning the stock and having the upside or downside associated with that from there. That also includes dividends.

And then also it opens up to be the wheel. So if we’re assigned that put, we end up owning the shares. And then we can start selling covered calls against them.

So that’s collecting more premium. It’s lowering our cost basis until the shares are eventually called away at a gain. So the premium is a primary function.

Valuation is the essential function. And every trade comes with the full thesis, walking our subscribers through why we’re doing it and what we’re doing.