Do you know how to buy stocks at a discount by selling options?
Today SlashTraders will show you how to sell Cash Secured Put option contracts to reduce the costs of purchasing stocks.
What Is Selling a Cash Secured Put?
A Cash Secured Put is an options strategy that requires holding cash reserves of 100 stocks while selling a Put option.
Let's check out the profit analysis of selling an OTM Cash Secured Put option. We receive a premium when selling a Put. As long as the stock price does not drop below the strike price before expiration, the Put option value expires worthless, and the premium received becomes our profit.
The Put option will be exercised if the stock price drops below the strike price.
This means we are forced to purchase 100 stocks at the cost of the strike price less the premium received.
Cost per share = strike price - premium
Advantages of Selling Cash Secured Puts
Selling Cash Secured Put options is part of the Wheel Strategy, and a good long term strategy to buy-and-hold stocks.
In a bullish trend, we can continue to sell Cash Secured Puts for income through premiums. In a bearish trend, we would purchase the stocks at the strike price, which is lower than the original market price, then wait for the blue-chip stock to bounce back in the future.
|Price trend||Outcome of Cash Secured Put|
|Bullish||Profit from premium|
|Bearish||Buy 100 stocks at discount|
Can You Lose Money Trading Cash Secured Puts?
If the stock price crashes after we sold the options, then the company never recovers to our purchase price, or even goes bankrupt, the maximum loss of our Cash Secured Put trade is buying worthless stocks at the strike price.
So we only trade Cash Secured Puts on blue-chip stocks that we want to hold for a long time.
The Best Cash Secured Put Opportunities Now
We can use the Bullish Value Stocks to find a list of financially strong companies that are currently undervalued.
The list shows both Shopify and Facebook are extremely undervalued right now. They are great companies with profitable software platforms and huge competitive advantages:
- Both companies have close to 100% Upside from their respective Fair Values.
- Plus the Long Signal Days indicator shows both stocks bottomed out last week.
So we can trade Cash Secured Put options to SHOP and FB to earn income from the premium while anticipating an upward rebound.
SHOP's market price is currently around $600, we can sell a Cash Secured Put at 0.20 delta, $495, that expires next month. The options trade will earn us an income of $19.40 per share.
If the stock price drops, we have a chance to buy 100 shares of Shopify at $475.60, around 21% off the original price.
Meta's market price is currently around $200, a short Cash Secured Put at 0.20 delta, $175, that expires next month will receive $3.60 in premium per share.
If the stock price drops, we have an opportunity to buy 100 shares of FB at $171.40, around 14% off the original price.
Both Cash Secured Put trades give us the opportunities to buy stocks at a discount. Apart from the differences in discounts, we also notice the differences in cash buying power required for the two trades.
|Stocks||Discount on stock||Cash needed|
The SHOP trade requires $47,560 of cash to secure each Put option contract. While the FB Cash Secured Put option requires $17,140 of buying power per contract.
Now you know how Cash Secured Put options work, you can use the Bullish Value Stocks list to find heavily undervalued blue-chip stocks. Then use the short Put premium to offset the cost of purchasing stocks.
4 thoughts on “如何賣Cash Secured Put撿便宜買股票”
cash secured put選擇權看起來真好用
如果要長期持有股票，真的一定要學會賣Cash Secured Put options
Thank you for confirming my opinion about selling cash secured puts
I’ll keep trading them to buy and hold my favourite stocks
Yes, it’s a great way to buy stocks at a discount when you want to hold onto the stock for a long time.