Sell Put Options
The Patient Buyer's Strategy
Master the art of selling cash-secured puts - a strategy that lets you collect premium while waiting to buy stocks at your desired price. Learn how to effectively become a "patient buyer" in the market.
Strategy Overview
When you sell a cash-secured put, you're agreeing to buy shares at a specific price (strike price) if the stock falls below that level, while collecting premium upfront. This strategy is like getting paid to place a limit order, combining potential stock acquisition with immediate income.
Premium Received
The income you collect upfront for selling the put option. This reduces your effective purchase price if assigned.
Strike Price
The price at which you're obligated to buy shares if assigned. Choose this based on your desired entry price.
Cash Required
Must maintain cash equal to strike price × 100 shares per contract to secure the position.
Break-even Price
Strike price minus premium received. Stock must fall below this for a loss.
Payoff Diagram
When to Use This Strategy
Entering Stock Positions
When you want to buy shares of a stock at a lower price than the current market value.
Income Generation
When you want to earn income from your cash reserves while waiting for better entry points.
Market Conditions
During periods of high volatility when put premiums are attractive, or when you expect sideways to slightly bullish movement.
Example Trade
Let's examine a cash-secured put strategy:
Trade Setup
- Stock: XYZ currently at $100
- Action: Sell 1 put option
- Strike Price: $95
- Premium: $2.50 ($250 total received)
- Cash Required: $9,500 ($95 × 100 shares)
- Break-even: $92.50 ($95 - $2.50)
Potential Outcomes
Best Case
Stock stays above $95:
- Keep full premium ($250)
- No shares assigned
- Can sell new put next month
- Return on capital: 2.63% for 45 days
Assignment Case
Stock falls below $95:
- Keep premium ($250)
- Buy shares at $95
- Effective cost basis: $92.50
- Can start selling covered calls
Strategy Quick Facts
Maximum Loss
Strike price - premium (if stock goes to zero)
Maximum Profit
Premium received
Break-even Point
Strike price - premium received
Time Decay Impact
Positive (helps position)
Implied Volatility Impact
Higher IV = more premium received
Risk Management
Common Mistakes to Avoid
Insufficient Cash Coverage
Not maintaining enough cash to cover potential assignment, leading to forced liquidation or margin calls.
Chasing High Premiums
Selling puts at higher strikes just for premium, without genuine interest in owning shares at that price.
Ignoring Fundamentals
Focusing only on premium and technicals while overlooking the underlying company's financial health.
Poor Position Sizing
Selling too many puts relative to account size, risking overexposure to a single stock.
Ready to Generate Income?
Master cash-secured puts through our interactive tools: