← Strategy LabLesson 6 · 3:52
Cash-secured put
Summary
Use a cash-secured put when you want to own the stock, but only at a lower price, and you have the cash ready to buy it. You sell the $95 put for $1.41 a share and set aside $9,500, so $141 is the most you can make, and if XYZ went to zero you would lose $9,359. You break even at $93.59.
Key terms
- cash-secured put
- Selling a put while setting aside the strike times 100 in cash to buy the shares if you're asked.
- cash set aside
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
- effective purchase price
- What the shares really cost you if assigned after counting the premium, such as $95 minus $1.41, which is $93.59.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the XYZ $95 put. How much cash do you set aside to make it cash-secured?
2. Where does the $95 cash-secured put break even?
3. XYZ ends at $90 on the last day. What is your result?
4. What is the most you can make on this cash-secured put?
5. XYZ sits at $95 and days pass with nothing else changing. What happens to your result?
Finished the video and the quiz? .