Cash-Secured Puts Explained: Get Paid to Buy Stocks at a Discount

During their recent episode of the Acquirers Podcast, Travis and Carlisle discussed Cash-Secured Puts Explained: Get Paid to Buy Stocks at a Discount. Here’s an excerpt from the episode:

So there’s several different strategies of option strategies that we utilise at the Value Options Letter. So the first one is cash secured put. This is probably the most common strategy that we’ll utilise.

So basically what we’re doing is we’re selling a put at a strike where you’d happily own the stock and every option correlates to a hundred shares. Okay. And so the way it works is you get paid the premium up front and the cash reserved is your total put exposure.

So if it’s a $50 stock and you collected $500 of premium and the strike is $50, you’re obligated towards $5,000, which is 50 times a hundred minus the $500 premium. So your cash allocated would be $4,500. That would be your exposure.

So we’re not talking about using any leverage, none of that kind of stuff. And so basically it’s just the flip of a coin, heads or tails. That’s what I like.

The way that the Value Options Letter utilises options is simple. I mean, it’s not complicated. You don’t have to read all the charts.

That’s not our game. That’s not what we do. So heads, if the stock’s above 50 in this example, you make 500 bucks.

If the stock’s below 50, you end up owning the stock at 50 minus that premium. So your break even is 45. So that’s the cash secured put.