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How to Sell Cash Secured Puts

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          Cash secured puts are in one way the opposite of covered calls. Selling a cash secured put is selling a put that is based on you having enough money in your account such that if the put is exercised on the open market you will have to take ownership of the shares of stock that the put contract describes. For example if a stock XYZ is priced currently at 100 dollars and you sell a cash secured put contract for 100 shares of stock with a strike price of 90 dollars then if the stock price falls to 90 dollars then you must purchase 100 shares of stock XYZ for the total cost of 900 dollars plus any commissions. You will have earned a fee for selling the cash secured put in the first place that you can pocket whether or not the put is exercised. This method is a good way to earn extra money if the stock price does not hit the strike price. Also it is a good way to purchase a security that you want to buy anyway and at the same time make a commission as well. If you are new to options trading then read the steps below on how to sell a cash secured put.


Step 1

To start off you must pick a security that you want to sell a cash secured put on. Decide whether or not you want to take ownership of the stock or not. If you don’t then choose a stock which you think is not going to hit the strike price of your put. For example if you sell a cash secured put for a 50 dollars strike price on a stock currently being sold at 60 dollars then you should think that the stock will not fall to 50 dollars. On the other hand if you want to purchase and own a stock then sell a cash secured put on a stock that you want to own at the price you want to purchase it for. For example if a stock is trading at 60 dollars and your put strike price is at 50 dollars then you should know or have reason to believe that the stock will drop to 50 dollars at some point before the option will expire.

Step 2

Using your brokerage firm or online trading account you must activate your account for options trading if you have not already done so. To activate your account for options trading you must fill out some forms with your brokerage firm that show how much experience you have trading options. You must also fill out information about how much regular stock market trading experience you have and how much average money you trade with per year. The stock brokerage firm will then decide based on your experience how much options trading power they will allow you to have. Sometimes it may take a few months to get access to trade options. It is better to have a few years of regular non options stock trading experience under your belt before applying to trade stock options.


Step 3

Once your account has been activated for options trading and you have chosen a stock to sell the put on then you need to activate the sale of the cash secured put. You do not need to purchase any stock at this time. Basically you will research the current puts available, choose one, and on your options page in your account you will fill out the information necessary to sell a cash secured put. Once the put goes into the open market you will receive a fee for its sale that automatically goes into your brokerage account.



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