[ux_html label=\”Ad_1\”]

[/ux_html]

Introduction:

The Cash Secured Put strategy involves writing a Short Option and simultaneously setting aside enough money to cover the position in case the option gets assigned.

A cash secured put option gets assigned when the stock closes below the sold strike price at the expiration date.

During this article we are not going to get into details on how to trade the cash secured put, as I can learn in the above link, so please feel free to read it, it’s completely FREE.

A quick summary, the cash secured put is mainly traded when an investor is bullish on a particular underlying security and getting into it via a Cash Secured Trade might be a better way to buy stock than buying it outright at the market price. Therefore, if an investor is willing to purchase a specific stock but doesn’t want to pay the market price, the investor can initiate a cash secured put trade and simultaneously get paid to wait for the stock to pull back to the desired sold strike price.

By selling the cash secured put option, the investor can use the initial premium received to generate regular income and at the same time reduce the cost basis of purchasing the stock.

Firstly, the investor needs to determine which stocks are appropriate to sell options, and once the investor builds a trading Watchlist, it becomes much easier to follow the stocks than randomly look for stocks to trade. Learn for FREE our 5 concepts on how to first determine which stocks are good stocks to trade options.

In the Complete Guide to Selling Puts from Unison Trading article we use the XZY 50 Stock, and the trade had the following input parameters:

• Strike Price = $50
• Premium = $1.50
• Purchase Cost: Strike Price – Premium = ($50 – $1.50) = $48.50 per contract

In this particular trade, the option seller will be receiving the premium upfront, but at the same time the option seller will be obligated to purchase the shares at the agreed $50 sold strike price if the stock closes below the $50 strike price at the expiration date.

As a full-time Trader/Investor, I highly recommend tastytrade as a broker to trade options

By taking advantage of tastytrade\’s $100 to $2,000 bonus, you can get started trading today with the best option trader broker

But remember that, for most of the US stocks, for each contract sold it is equivalent to 100 shares of the stock.

Therefore, for the above example, if the option seller gets assigned, which means the stock closed below the $50 at the expiration day, the investor would need to have in cash reserved the amount of $4,850 per contract sold to fully cover the obligation of the shares purchase.

The initial premium is used to reduce the costs of purchasing the shares. In this example the final cost for the stock would be $48.50 per share, or $1.50 less than if the investor had bought the shares at market price of $50 per share.

In the Complete Guide to Selling Cash Secured Puts trade example, we didn’t go through any sort of trade management examples.

The Complete Guide to Selling Cash Secured Puts articles was mainly constructed to show new investors how to trade and make sure that the investor fully understands the main goals in trading the cash secured put strategy.

And we mentioned that If the investor was willing to hold the stock, then the investor would need to make sure the account can cover the amount required to buy the shares at the total cost of $4,850 per contract traded.

However, we have also mentioned that, if the investor no longer wants to buy the shares, then the investor just needs to sell the shares straight after being assigned the stocks. But in the articles we will explore the trade management side of it, when the investor can keep mangling the trade until the investor can manage to close the trade for a profit or scratch.

Risks involved in Selling the Cash Secured Put:

The main risk on the XYZ trade was if the XYZ business went bankrupt, because as we learned during the Complete Guide to Selling Cash Secured Puts articles that no business is too big to fail.

But of course in the case of particular stocks like the blue chip stocks such as; Apple, Microsoft, Amazon, Facebook and so on, the odds of these types of business going bankrupt in a short period of time is almost zero, but it can still happen.

Wrong strike price selection, wrong delta, wrong DTE (Days to expiation).

When it comes to strike price selection the investor needs to define his/her style of risk averse style Because some investors may look for a better premium capture, but a different investor may look for a better downside protection. So, once you define what suits you best you can start selecting the right strike price, here at unison we mainly trade in a range of 16 to 30 deltas with cycles of 30 to 60 DTE, which is a level we can maximize our returns by at the same time minimize our risks.

And another and the main reason people lose a lot of money selling options in general, is to be over leveraged on single trade. If you take traders that lost a lot of money selling options, you will find one thing in common, trading large position size.

All these trade input parameters plus our own Risk Management are covered in details in the UNISON INSURANCE TRADING MODEL, click on the link below and get instance access to our trading community, and learn how to be a consistent, patient and disciplined profitable trader.

Trade Notations:

• P = Premium Initially Received
• K = Sold Strike Price
• S = Current Stock Price
• DTE = Days to Expiration
• Contract = # of contracts Sold
• BE = Break Even
• IVR = Implied Volatility Rank = 30

Trade Parameters:

Ticker: XYZ 

Trade Maximum Profit:

Option sellers potential trade profits in general, are limited by the amount of premium received.

No matter how high the stock price may jump, the profit will always be capped by the amount initially received in premium.

Maximum Risk:

Stock can go to zero, so the risk would be the same as the investor that bought the stock outright.

In this example would be ($48.50 * 100) * # of contracts = $4,850

Therefore, because of the initial premium received, option seller’s maximum losses will always be slightly less than the outright buyers.

Break Even:

Strike Price – Premium initially Received

In this example would be ($50 – $1.50) = $48.50

Trade Profit and Loss Diagram:

1 Short $50 Put at $1.50 premium per contract.

LEARN FOR FREE OUR TWO MOST POPULAR STOCK OPTION STRATEGIES

[row]

[col span=\”6\” span__sm=\”12\”]

[ux_image id=\”5964\” height=\”56.25%\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3/\” target=\”_blank\”]

[button text=\”CLICK TO LEARN\” color=\”alert\” radius=\”99\” expand=\”true\” icon=\”icon-checkmark\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3/\” target=\”_blank\”]

[/col]
[col span=\”6\” span__sm=\”12\”]

[ux_image id=\”5970\” height=\”56.25%\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3-2/\” target=\”_blank\”]

[button text=\”CLCIK TO LEARN\” color=\”alert\” radius=\”99\” expand=\”true\” icon=\”icon-checkmark\” link=\”https://unisonfinanceclub.com/landingpage/pluginops-page-5647-3-2/\” target=\”_blank\”]

[/col]

[/row]
[ux_html label=\”Ad_1\”]

[/ux_html]

Stock Price Trade Outcome:

Passible trade outcomes in relation to the stock price at expiration date:

Trade Management:

And now we are going to learn how we would have managed the trade in different stock prices scenarios.

Trade Management:

Entry Date:

In the above example, with the XYZ trading at $60per share, we have sold the 45 DTE, $50 Strike Price for an initial premium of $1.50 per contract.

Max Profit = P = $1.50 = $150 (per contract sold)

Max Loss = (K – P) * 100 = ($50 – $1.50) * 100 = $4,850 (per contract sold)

BE = (K – P) * 100 = ($50 – $1.50) = $48.50

Please Note: As a quick reminder, when we sell OTM options, and the trade expires OTM, or in other words, the stock closes above the $50 sold strike price by a penny at the expiration date, the option seller can keep the full premium initially collected for that particular trade, in this case the $150.

When an investor sells any type of stock options, the trade has 3 possible case scenarios at the expiration date:

• Case 1: Trade Expire OTM

Stock closes above the Sold Strike Price (OTM)

• Case 2: Trade Expires ATM

Stock close at the same price as the Sold Strike Price (ATM)

• Case 3: Trade Expires ITM.

Stock close below the Sold Strike Price (ITM)

Now let’s discuss each of the above cases, and learn how we can manage the trade according to the current stock price.

Case 1: Stock Price Closed at $55 (Trade Expired OTM)

In case 1, the stock price closed at $55 per share at the expiration date. In this case because the stock price closed above the sold strike price at the expiration date, the investor will be able to keep the full $1.50 or $150 per contract, and just re-establish the position on the same underlying if the investor still sees a good opportunity on it, or the investor can just move on to another opportunity on a different product.

Case 2: Stock Price Closed at $50 (Trade Expired OTM)

Please Note: For any short option to be considered to be ITM, the option needs to be trading at least by a penny below the strike price, and for a long option the stock needs to be trading at least by a penny above the bought strike price.

Therefore, in this case, the investor will have the same trade outcome scenario as case 1, and the investor can follow the same procedures as case 1 in terms of new trading opportunities.

Case 3: Stock Price Closed at $45 (Trade Expired ITM)

Case 3, is the worst case scenario that a short option can have at the expiration date. It is when the stock price closes below the sold strike price, or in other words the trade expires ITM.

Of course, when we say worst case scenario, is not that it becomes a big deal for us when a particular trade is trading ITM or ended up expiring ITM, as we do cover in great details during our UNISON OPTION INSURANCE TRADING MODEL, how to get unassigned out of any ITM trade, and at the same time make more money on the trade, so please if you interest in learning the strategy plus lots of trade entry/close and trade management, click on the button below and join our trading community, and be a profitable stock option trader like us.

Of course, the best trade outcome for an option seller, is the case 1 and 2, when the trade just expires OTM, so we can easily let the trade expire worthless or we can just buy it back for pennies.

Remember that, in these 3 cases that we are covering here, we are assuming that the investor is only dealing with the trade at the expiration date. But as an option seller, we need to be quick to respond to any kind of trading circumstance that the market throws on us, and waiting for the expiration date is not the best approach.

In this example, as the stock price closed at $45 per share, the investor would be losing $3.50 per contract on this particular trade, which is calculate as follow;

Max Loss: (S – K – P) *100 = ($45 – $50 – $1.50) *100 = -$350

In this example the trade expired $5.00 ITM, which is the calculation between the stock price minus the sold strike price, but because the investor initially received the $1.50 in premium for selling the option, the final net loss would be -350 instead of -$500.

And if the investor still bullish in the particular trade, what the investor can apply the method of Rolling Forward the option by;

BTC (Buying to close) the $50 Sold Strike for -$5.00

STO (Sell to Open) the 45 DTE, the same $50 Strike for $5.50

The reason the new option (STO order) would be worth more than the current closing option (BTC order), is because longer DTE options have more EV (Extrinsic Value) or Time Value embedded to the option.

This is one of the main advantages of selling the Cash Secured Put, the investor would be able to always roll the option for a next month expiration for a credit.

Doing the Rolling Forward, the investor only needs the stock to be trading back above the $50 again to be able to close the trade for a profit or scratch.

But remember that, this is the simplest as it can get in terms of trade management, but there are lots of other trade management that could be applied to this particular trade or to any trade that is trading or expiring ITM.

If you are interested in learning very advanced trade risk management, and learn how we trick the stock market to manage our trades, click in the link below and join our trading community. With our advanced trade risk management, we could close this trade even with the stock trading at $40 and still making more money that we start with, so join our investment club and learn to be profitable with us.

Just keep in mind that, we as an option seller we need to react quick, so you need to always make sure that, before you press the trigger, you fully understand the risk involved to that particular trade,  and also be prepared to deal with any trade bad circumstance that you may have, as we here at unison trading we do believe that all the risk management is done prior to enter any trade, because once we press the trigger it’s not up to us anymore, but as long as we are prepared and know exactly what do in any stock market conditions, it wouldn’t make any difference on the outcome of the trade.

“Investor loses money not on what they know, but rather on what they don’t know”.

PUT YOUR KNOWLEDGE INTO PRACTISE: JOIN OUT TRADING COMMUNITY

Here at Unison we show our Real Trading Statement Results and we dont hide anything from our clients … Real Statements from Interactive Brokers . Our Trading return goals are very Realistic & Achievable and Honest, that is why we are consistently profitable year after year.

If you are after honest traders that is really profitable and dont sell BS and unicorn type of returns for clients and would like to trade like a professional investor with the long term goal in mind, you are absolutely in the right place.

Here at Unison Trading we are not concerned how many trades we put a day but rather how many quality trades we have traded on that day, so please don’t expect to join us and hoping for daily adventure and excitement, we take our trading and business very serious as we find it the greatest opportunity for us to create/maintain wealth and this opportunity is not done by excitement but rather professionalism on everything we do.

Although, here at Unison Trading we don’t trade looking for excitement neither for having fun, we are very aware of the Law of Large Numbers (Number of Occurrence’s), as we always make sure that our number of occurrences are in place so the probabilities can play out. Remember that the maths doesn’t lie.

Why Follow our Trade Alerts

• 100% Real Broker Statement (Interactive Brokers)
• Consistently Monthly Income
• Realistic – Achievable and Honest Results
• Lower the cost basis of your portfolio (stock)
• 100% Transparency
• Generate Increased return on investment
• Control Stock without owing it
• Leverage Capital
• Reduce Risk

And of course the main thing as a professional trader, Be Profitable .

What You’ll Get

• Real-Time Trade Entry
• Real-Time Trade Exit
• Real-Time Trade Management

All streamed live straight to your WhatsApp, so you can just check the alerts and place the same trades with nothing hidden.

——————————————————————————————————————————————————————————————————————–

[give_form id=\”1863\”]

[ux_html label=\”Ad_1\”]

[/ux_html]