Been hearing about cash secured puts but honestly don’t understand what they mean for regular investors.
Saw some people mentioning them in trading groups but the explanations were confusing. How do they actually work and what’s the real risk involved?
Trying to learn more strategies but want to understand this one properly first.
You get paid upfront to promise you’ll buy 100 shares at a set price if the stock drops that low. Your cash sits there earning interest until you either buy the shares or the option expires.
The real risk? Your money’s tied up so you might miss better opportunities. And if the stock crashes after you buy, you’re stuck with shares that could keep tanking.
This works best when you actually want to own the stock long-term, not just flip it for quick cash.
You sell put options while holding cash to buy the stock if needed.
It works like a limit order where you get paid to wait for a better price. You agree to buy the stock at a certain price if it falls that low.
Having cash secured means you are ready to buy those 100 shares. If the price hits your strike, you will end up buying.
The main risk is that the stock may fall further after you buy it, leaving you with shares that are worth less than your purchase price.
Cash secured puts let you earn money while waiting to buy stocks at your target price.
• You get paid premium upfront
• Need cash equal to 100 shares at strike price
• If the stock drops below strike, you’ll own the shares
Downside: you might end up owning stock that’s worth less than what you paid.
Selling puts on a stock you don’t want can be a costly mistake. I learned this the hard way when I got assigned on a stock after it fell 40%.
The premium was attractive, but I ended up with shares I didn’t want at a strike price that felt unjustified. Keep in mind that you should only sell puts on stocks you genuinely want to own.