Investing
The Cash-Secured Put Strategy: Get Paid to Buy Stocks at a Discount
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Result: The Put Strategy wins in sideways markets and loses less in crashes.
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The Cash-Secured Put Strategy: Get Paid to Buy Stocks at a Discount
CORE INSIGHTS
- Income While Waiting: Most investors set a “Limit Order” and wait for free. The Cash-Secured Put pays you cash (premium) while you wait for the dip.
- Lower Cost Basis: If the stock drops and you buy it, your effective price is (Strike Price – Premium). This gives you an immediate buffer.
- The “Wheel” Engine: This is Phase 1. Sell Puts to buy. Once owned, sell Covered Calls (#189) to rent. Repeat.
Warren Buffett used this strategy to buy Coca-Cola. Instead of buying shares at market price, he sold Put options. The Cash-Secured Put transforms you from a gambler into an insurance company—you get paid for taking the risk of owning an asset you already want.
What-If Scenario: Buying AAPL at $140 (Current $150)
| Strategy | If AAPL Stays > $140 | If AAPL Drops to $135 |
|---|---|---|
| Limit Order | Buy Nothing (Profit $0) | Buy at $140 (Loss -$5) |
| Sell Put ($2 Prem) | Keep $200 (Win) | Buy at $138 (Loss -$3) |
Visualizing the Payoff
*Figure 1: Profit/Loss Diagram. The Green Line (Put Strategy) has a lower breakeven point than buying stock.*
Strategic Action Steps
1
Select Quality
Pick a blue-chip stock (like SPY or AAPL) that you would love to own at a discount. Never sell puts on meme stocks just for premiums.
Pick a blue-chip stock (like SPY or AAPL) that you would love to own at a discount. Never sell puts on meme stocks just for premiums.
2
Choose Strike & Expiry
Aim for a Strike at “Support” levels (Delta 0.30). Duration of 30-45 days captures the fastest time decay.
Aim for a Strike at “Support” levels (Delta 0.30). Duration of 30-45 days captures the fastest time decay.
3
Manage the Assignment
If assigned (stock bought), don’t panic. You now own quality shares at a discount. Immediately switch to selling Covered Calls (#189).
If assigned (stock bought), don’t panic. You now own quality shares at a discount. Immediately switch to selling Covered Calls (#189).
The Bottom Line: Who Should Choose What?
- Sell Puts: Value investors with cash who want to enter positions smartly.
- Buy Stock: Momentum investors who think the stock will moon tomorrow (Puts cap upside).
Frequently Asked Questions
What is a Cash-Secured Put?
An options strategy where you sell a Put option on a stock you want to own. You get paid cash now. If it drops, you buy the stock.
What is the worst-case scenario?
The stock crashes far below your Strike Price. You must buy at the Strike Price, suffering a paper loss. But you own the asset.
Is this better than a Limit Order?
Mathematically, yes. A Limit Order earns $0 while waiting. A Put pays you cash. If the stock never drops, you keep the cash.
Disclaimer: This content is for informational purposes only. Options involve risk. Consult a financial advisor.