How to Sell Cash Secured Puts - Options Trading Strategy

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How to Sell Put Options to Benefit in Any Market
Selling (also called writing) a put option allows an investor to potentially own the underlying security at a future date and at a much more favorable price. In other words, the sale of put options allows market players to gain bullish exposure, with the added benefit of potentially owning the underlying security at a future date and at a price below the current market price.

Call Options vs. Put Options
A quick primer on options may be helpful in understanding how writing (selling) puts can benefit your investment strategy, so let's examine a typical trading scenario, as well as some potential risks and rewards.

An equity option is a derivative instrument that acquires its value from the underlying security. Buying a call option gives the holder the right to own the security at a predetermined price, known as the option exercise price.

Conversely, buying a put option gives the owner the right to sell the underlying security at the option exercise price. Thus, buying a call option is a bullish bet–the owner makes money when the security goes up. On the other hand, a put option is a bearish bet–the owner makes money when the security goes down.

Selling a call or put option flips over this directional logic. More importantly, the writer takes on an obligation to the counterparty when selling an option; the sale carries a commitment to honor the position if the buyer of the option decides to exercise their right to own the security outright.

Best Practices for Selling Put Options
Investors should only sell put options if they're comfortable owning the underlying security at the predetermined price because you're assuming an obligation to buy if the counterparty chooses to exercise the option.

In addition, you should only enter trades where the net price paid for the underlying security is attractive. This is the most important consideration in selling puts options profitably in any market environment.

Other benefits of put selling can be exploited once this important pricing rule is satisfied. The ability to generate portfolio income sits at the top of this list because the seller keeps the entire premium if the sold put expires without exercise by the counterparty. Another key benefit is the opportunity to own the underlying security at a price below the current market price.

Put Selling in Practice
Let's look at an example of prudent put selling. Suppose that shares in Company A are dazzling investors with increasing profits as a result of a new, revolutionary product. The stock is currently trading at $270 and the price-to-earnings ratio is at an extremely reasonable valuation for this company's fast growth track. If you're bullish about their prospects, you can buy 100 shares for $27,000, plus commissions and fees.

As an alternative, you could sell one January $250 put option expiring two years from now for just $30. That means the option will expire on the third Friday of January two years from now, and it has an exercise price of $250. One option contract covers 100 shares, allowing you to collect $3,000 in options premium over time (less commission).

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#OptionsTrading #CashSecuredPuts #SellingPuts
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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[JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here!

[JacksonWelch]

I am a simple man, I see a new Jake video and I watch it instantly. Thank you for the great content Jake. I think I have learned more from your videos than I have from my MBA classes lol.

[trinispur]

Jake, this is by far the best video on cash secured puts I’ve come across. You were very clear, made the content immediately understandable and you basically answered all the questions I had. If I could have asked for one further clarification it would be on the sell to close area as I am still a bit shaky on the actual mechanics of it. What also helped me a lot is that I also use Schwab so the screens were familiar to me. Excellent job!

[KpxUrz]

This is an excellent and thorough explanation of selling puts. I have made tens of thousands selling calls, and finally ready to expand into puts. Just entered my first order! Really appreciate your sensible style and the way you cover all possibilities.

[joecoupon]

I miss your stock analysis videos. You have no idea how much I enjoyed your

[stacyjohnson]

I must say it’s 1:30am EST time in the US and i am binge watching your content ..I’ve studied options for sometime, I came across your platform and it finally makes sense I can’t go to sleep because I’m soo excited to get it .. thank you soo very much!! 🤦🏾‍♀️😫😂. I will only be selling (Put Options)😊

[j.c.]

That was a very thorough explanation about selling CSP’s. I’ve come to expect nothing less from you Captain.

[MrJohnluvit]

Great tutorial was the best to understand of all I have seen previously

[ThinkMoneyBenny]

Selling Cash Secured Puts is one of my strategies ! 🎯

[darwinromero]

so simple to follow. best instructional video.

[russkatt]

That was great and you made it crystal clear, thank you!

[Sarasdad]

A kid could understand this content. Thank you, it was a pleasure watching your video learned a lot.

[ao]

I am new to options and you have been a great help in understanding what I've read. Thank you

[tonydooda]

Great info you're really good at explaining how selling puts work.

[matthewsherwin]

Wow Jake this is an awesome video and I am grateful to you for remembering to post this video. It helps me even more because like you I also use Schwab. Not only do you educate people which is clearly a strong point for you but you simultaneously understand these concepts fluently when you explain them in plain English. Thank you for all your hard work; be proud of yourself, Jake!

[cyberdjnyccyberdj]

@Jake, by far one of the best explanation I have come across, at times I ask myself, are they really trying to share the info in a comprehensive manner, you did an excellent job, all of my questions, concerns were answered, thanks for sharing this info .

[laptrafficracing]

This is one of the best videos ive seen explaining this. Thank you.

[CodyQuest]

Wow this explained so much in a simple and easy to understand manner. Thanks a bunch Jake

[peteversage]

Thanks Jake, this video was excellent. I've watched other videos on this topic and yours is by far the easiest to understand.

[andreunz]

We are all "long" on you Jake :-)