Cash Secured Puts To Generate Income (Step-by-Step Guide)
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- Опубликовано: 16 июн 2024
- SMB Options Workshop: tinyurl.com/5n7pp99n
This video will help you generate a consistent stream of monthly cash flow through the power of cash secured puts.
If you're looking for ways to supplement your current income or even replace it entirely by trading for a living, then this video is tailor-made just for you.
In this video, we'll be sharing an in-depth look at a campaign of cash secured puts that can provide substantial amounts of monthly cash income when executed correctly. With my step-by-step guide, you'll learn how to implement these strategies effectively and maximize your potential returns.
00:00 - Intro to the Strategy
00:59 - Basics to Options
01:21 - Cash Secured Put Strategy
12:19 - Takeaways from Strategy
#optionsstrategy #cashsecuredputs #optionsincome
SMB Disclosures www.smbtraining.com/blog/smb-...
For those noticing that the premiums are not great right now, note that VIX is very low at this point. One other thing to note is that the SPY is in the upper part of the bollinger band, and RSI, MACD etc are all near the top of their ranges. That's never a good time to sell puts. I think this strategy could be greatly augmented by waiting for pullbacks before trying to sell puts. Just my $.02
That's why I sell puts on MSTR
Or sizing down in times of low IV and increasing size when IV is higher
@@michaelkofman3881 not inverse, with low IV increase size, or go less OTM? Also, you may sell OTM calls as the market is overbought, perhaps?
@garystone great point. This is just an introduction to the concept. Nuances like selling in higher VIX periods and timing entries technically is the next level. Very astute points on your part
Look for 30 rsi and back 🔙 up the money Truck 🚛🚛🚛😂😂😂😂😂😂😂😂😂
Managing money is different from accumulating wealth, and the lack of investment education in schools may explain why people struggle to maintain their financial gains. The examples you provided are relevant, and I personally benefited from the market crisis, as I embrace challenging times while others tend to avoid them. Well, at least my advisor does too, jokingly.
I don't think I need a finance advisor. I can manage my own money and investments. I don't want to pay someone else to tell me what to do with my hard-earned cash.
That's a risky attitude, My friend. You might be missing out on some valuable opportunities and strategies that a finance advisor can offer. A finance advisor can help you plan for your short-term and long-term goals, optimize your tax situation, diversify your portfolio, and avoid costly mistakes.
I agree with You. A finance advisor can also provide you with objective and unbiased advice, especially when you are facing emotional or stressful situations. They can help you stay on track and avoid making impulsive decisions that can harm your financial future.
how did you find a good finance advisor? How do you know if they are trustworthy and competent?
@@SeanJohns-ze8ie I used to think like you. I thought I knew enough about finance and investing to handle everything myself. But then I realized that I was spending too much time and energy on researching, analyzing, and monitoring my finances. I was also overwhelmed by the amount of information and options available. I decided to hire a finance advisor and it was one of the best decisions I ever made. They saved me a lot of time and money, and gave me peace of mind.
Thanks for sharing this strategy.
Considering that $130,500 would be required to make an income of $15,771, which is around 12.08%, this would be lower than the profit if SPY was bought at $384.52 at the beginning of this campaign and sold at $450.79 at the end of this campaign, which is a profit of 17.23%.
Exactly ! plus this is a lot of hands on work, selling puts, then selling calls if shares got assigned, etc.... the so-called Wheel Strategy....is there any data comparing returns from Wheel Strategy on SPY versus simple buy and hold SPY over long term?
But if SPY never budged past $384.52 this strategy would have returned 12.08% vs. 0% for buy and hold. There is always a tradeoff, it always depends on your investment or income generation goals.
Yes but with the wheel strategy you will ALWAYS make money regardless the market is going up or down down down. Therefore it is the ultimate no stress strategy
What cozmodog said😅. That’s the reason you implement this strategy
@@strothhayden2473 You won't always make money. If the position goes far enough against you, there will be no time premium (extrinsic value) in the calls. You will either have to wait until it moves at least some amount back in your favor, or sell closer to the money calls and risk taking a loss on the original position if the price runs past your calls. The general strategy has merit, but it is not as simple as ALWAYS making monthly income while waiting for SPY to come back.
Excellent video and thank you for sharing
I like the nuetralizing of share price picking strike prices for calls and puts, focusing on getting only credit.
These are very valuable rules for anybody who wants to get rich. Unfortunately, most people who will watch this video will not really be able to apply the principles. We may not want to admit, but as Warren Buffett once said, investing is like any other profession-- it requires a certain level of expertise. No surprise that some people are losing a lot of money in the bear market, while others are making hundreds of thousands in profit. I just don't know how they do it.
By being knowledgeable about money and investing, individuals can make informed decisions about how to save, spend, and invest their money. I know someone who made over $350k in this recession influenced market, but to the best of my knowledge, it was through a financial advisor.
@@M.Morgan . Bloomberg and other finance media have been recording cases of folks gaining over 250k just in a matter of weeks/couple months, so I think there are a lot of wealth transfer in this downtime if you know where to look. I have been using an FA since 2019, and I return at least $21k ROI, and this does not include capital gain.
@Johnny-se8hk > My investment advisor is Katherine Nance Dietz, she's verifiable and I'm very sure you can find info about her on the internet, her qualifications speak for itself.
@@valentinaarrelaro Thanks for this. could easily spot her website just after inputting her full name on my browser. She seems really proficient and flexible. she replied my inquiry and we scheduled for a call sometime tomorrow.
I would have thought talking about what getting assigned looks like and how much money you need in your account if you get assigned??? $40,000??? If your put gets assigned? So is that what we need to start with to jump in this kind of trade?
Most of the time, I hold cash and wait for the stock market to reflect the true state of our affairs. Or is gold the greatest option to maximise my $350,000 in savings and avert a crunch? I would like to hear your thoughts.
we are living in a command economy. no way I'm buying into a market where the indexes are at all time highs
reminds me of the guy who sold all his stocks in like 1928 and everyone was calling him a chump, then the market crashed and he bought back in after a few years and made a killing, whereas many people got burnt
The issue is most people have the “I want to do it myself mentality” but not equipped for a crash. Ideally, advisors are perfect reps for investing jobs and at first-hand experience, my portfolio has yielded over 300%, summing up nearly $1m, since covid outbreak to date.
I find your situation fascinating. Would you be willing to suggest a trusted advisor you've worked with?
'Melissa Rose Francks' is the licensed advisor I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
Great content. Explained very well and easy to understand.
At the peak of this campaign $130,500 was tied up securing puts, or sunk into shares. The annual return of $15,771 was thus 12.085%, PLUS currently my broker pays 5.01% on cash, so in the months where cash was securing puts... if we look at the months securing puts and assume that was the minimum cash that had to be in the account, then add that months interest to the end of year option premium total:
December: $112,500 x 0.0501 / 12 = $470 + $15,771 = $16,241
January: $120,000 x 0.0501 / 12 = $501 + $16. 241 = $16,742
March: $120,000 x 0.0501 / 12 = $501 + $16,742 = $17,243
May: $120,000 x 0.0501 / 12 = $501 + $17,243 = $17,744
June: $121,500 x 0.0501 / 12 = $507 + $17,744 = $18,251
July: $126,000 x 0.0501 / 12 = $526 + $18,251 = $18,777
August: $129,000 x 0.0501 / 12 = $539 + $18,777 = $19,316
September: $130,500 x 0.0501 / 12 = $545 + $19,316 = $19,861
October: $130,500 x 0.0501 / 12 = $545 + $19,861 = $20,406
None of the periods of ownership/short call holding (Feb, Apr, Nov) were dividend paying months, so that can be ignored. Using the maximum capital because I'm lazy, this cash actually would have earned (in my account) $20,406 on $130,500, or %15.64.
Makes one wonder if you would have made more than 5.01% on the capital if you'd opened with the covered call instead of the cash secured put...
Great video as always and while I like the strategy and totally grasp the advantages, if you had simply bought the SPY in Dec22 with your $130,500.00 in needed capital, you would have earned 16%+ vs the 12% realized in the exercise without the monthly babysitting.
Thanks for the video, I do like the series. For additional realism it would be nice to run this between eg Sept/00 and Feb/03 which would have entailed rolling the short calls down with the SPY and a cool demeanor as any assigned shares would have lost close to 50% (I realize I am being overly simplistic/ ignores bear rally's etc). Not saying there is anything wrong with the strategy during secular bear markets since income is the goal and in fact the premia would be better but for those not old enough to remember or suffering memory loss it is something to keep in mind so good to understand what type of market one is in.
Hey Seth, an excellent video.
Love this videos, presented very well. Greetings from Switzerland.
Thank you Matthew!
Thank you!
If the market is in a protracted downturn, what call strike price would you use while you own the 3 SPY as the previous put strike price might be much higher and the call premium for selling wouldn’t generate much income?
of course it requires about 135000 US$ in cash with current SPY level. +15k US$ on 135 k$ is a yield of 11%. Not exactly exciting with some good dividend payers offering >10% (tax free for US residents if I remember well). I believe Seth posted a modification where he takes the trade off when 50 or 60% of the max return is reached then entering in a new position. I believe this modification yields more.
Would be great to hear about hedging the negative Vega and long delta risk in this campaign by selling ES/MES and selling VIX puts to buy VIX calls etc
Couple things::
Market can go down and you will baghold SPY for long time, look at 2022, and won't be able to sell Covered Calls for your breakeven price
Also , when selling Covereed Calls at breakeven price , if this Call closes at higher then you sold it, you lose, you don't gain
Yeah if the market crashed you lose your ass.
Very good Sir.
Why the speaker does not mention the costs of transactions? You need to have $375x100x3 = $112,500 to be able to sell 3 cash secured puts!
Great video , Thank you for the informative illustration of a cash secured put program.
It convinced me Not to pursue that strategy. In your example, at the beginning of the "Campaign" if someone was to simply purchase the 300 shares of spy at 384.52 and sell them at the end of the "Campaign" at 450.79 , one would have 19,881.00 resulting in 4110.00 more than the "Campaign" results of 15,771.00 , Thanks again for enlightening me !
Not to mention the cherry-picked time period.
Rather than getting assigned, why not roll down and out? You can still collect cash and don't have to buy any shares. I sell puts leveraging Treasury bills. That way I keep treasuries paying ~5.5% and collect premiums from selling puts. Rolling them down lowers how much is leveraged. Rolling them out gives more time for the price to go back up.
Yep doing the wheel on TLT is very effective. Plus I own TLT along with short calls before the monthly ex-dividend, and then convert back to short puts and get almost 5% on my cash balance in my account while holding the short puts between the dividend! I essentially shoot for 3-4x the monthly yield on TLT.
Can you explain more how that works?
At Stephen, yes but you can take losses on those roll downs so up prefer not to go that route
can you explain the leveraged T-Bill strategy?
@@FranciscoDelValle180 chat gpt can
Thank you for the video and education.
IThis is my question, how do you handle the trade if you hold the spy and (for example) it drops 15% a month (which rarely happen but will cause a big damage to the cash flow and value of account)?
the technical answer is yer fkd
Awesome 👏
The title of the video is wrong. They should have name it wheel strategy bc that’s exactly what it is. Besides he needs get more in details what it takes to execute that strategy. 1st if you use that strategy as he explained, you ll gonna need at least 120k account assuming it’s cash account unless you use margin account
Maybe should do this just when the VIX is high? Better premiums then.
I think SMB should have compared this income approach to the total return approach of buy and hold. It makes the presentation more legit. This is a classic example of trading that gets roasted on Bogelheads. The tax implications also greatly favor buy and hold over this approach. But as always, the presentation is well done and clearly explained.
It's a strategy for monthly cash income. Buy and hold is not for monthly cash income, so I don't think it needs to be compared unless one is choosing to do one instead of the other
@@brianshulman6418 Well anyone certainly has the option. There's nothing special about monthly income. It's all about total return.
@@brianshulman6418buy and hold and sell at the end of the period that you are using your contracts. That's the comparison. No one is talking about buy and hold forever
i’m sure bogelheads is roasted on too. there’s always an alternate opinion somewhere.
What is your opinion in doing this on the weekly instead of the monthly?
The recurring question I have, is why are you doing monthly options? Wouldn’t the weekly options pay about the same? Can you tell me why you prefer monthly over weekly?
What if you did this strategy using QQQ, would you still use the 2% below its trading price, would it make more sense to use 3%?
This is a little riskier but requires a lot less capital.
You can sell 50 cash secured puts on SOFI @ $6.5 Every couple of weeks and bring in about $700 every 14 days.
Again, selling puts on individual equities is inherently more risky, but also a lot more profitable. I’ve generate over $1.3 M in premiums off a $2.4M portfolio this year alone.
Best of luck and to each their own :)
@thewheeldealstradingjournal sofi is a money losing company, how does it stay in business?
@@gavnonadoroge3092 it will be GAAP profitable this quarter. They are making huge strides. I’m not in the convincing business. To each their own. All the best
@@gavnonadoroge3092this didn’t age well 😊
I am really enjoying your videos. I would like to start this however, I'm only able to sell covered calls at this point. Are there platforms out there that you can sell puts and naked calls without a margin account?
It's common to use futures options instead to reduce the margin requirement
The strategy looks great when the SPY is in a prolonged uptrend. But downtrends lasting several months such as in 2022 would make it difficult to stick with the plan. Especially when the scorecard shows only paltry income for months on end.
It doesn't even look good on an uptrend considering you would do better just buying and holding SPY itself in his example.
How are you receiving premiums at such high prices? As of today, selling put options at 2% below current price generates ~$2
Can you close out the covered call positions early? And would it be beneficial to do so?
It would be beneficial to close out early - if you’re able to buy back the call for a lot less than you received in credit
The profits are around 1.5% of your position, this means that any imbalance between the asset price and the option gain can reduce or wipe your profits.
Time is the KEY that compounds money faster...0dte or weekly is extra money each week to add to the next week....for example...
Generally, it is nice approach... but 1) selling 35 delta puts... 2) expecting reversal and hard landing in December coming...
When you are assigned stock do you consider selling covered calls above your cost basis so you can turn a profit when assigned on the call? Also, how do you select expiration dates?
Assuming one owned the 300 SPY shares during the same period, he/she will make more money than the income strategy proposed here. Understood the point here is for income generation, and the strategy would perform much better when the market goes sideways. Would it be better to own share and sell covered calls - assuming the market always goes up in the long run?
Short put and covered call are 100% identical positions, you can switch them for wheel. Or just roll puts indefinitely. Check math, it's absolutely same properties
math assumes everything is random. reality is that we have more up days.@@user70331
Buy and hold would always win in the long run. But that's not the point. If you trade full time (retired etc.) you likely need more reliable income than "buy and hold" will provide.
@@user70331rolling stops working as delta gets higher (or lower in our put scenario)
@@user70331 the math is _similar_ , not the same. The covered call will typically return more than the cash secured put.
I am going to do this strategy in retirement.
How do we come up with the capital if the sold the shares at 435 but spy is at 455.
He never mentions that, by the way, you need over $130,000 in your account to do this strategy.
is it a sort of "wheel strategy" ?
that's exactly what this is. really nothing new here at all.
SPY is a dividend yielding security. Why not use synthetic puts by selling in the money calls and get a better chance at collecting dividends?
Depending on when you sell the put, you will collect some dividend in its premium (and the converse -- depending on when you sell the call it will have the dividend missing)
But this is still probably a better idea than the short put
Can your shares be called away before the expiration date?
Can you be assigned shares before the expiration date?
I don't believe so on a ETF
Yes and yes.
You'd only expect to be assigned early on the short call the trade date before ex-dividend (you will tend to lose some return when this happens).
You can be assigned more often on the put if the market falls (and there's not a dividend soon)
At the time when we get the shares assigned, can we also sell puts along side the calls to collect more premium? Or there is a drawback for doing this? I assume since we own the shares at this point we can sell both puts and calls
Yes, you can but you need have additional cash in your account to covered those puts.
Selling more puts when you already have shares can result in being assigned even more shares, with a prerequisite that you have cash to pay for them.
@@AmGoWha I was referring to selling puts against my already owned shares
@@minatharwat1
You can, but what if it goes against you, what is your way out?
@@AmGoWha you’re right no way out will lose the shares for a bigger loss
How did you calculate the $130.5k ?
Edit: Found it. $435*3*100
Next question is, what happens if the sell call doesn't get assigned ? Sell call again at same strike price ?
is selling a put over Market price a good strategy? They are a very high premium.
See what happens!
2:19 but sometimes it takes the market a decade or 2 to take out all time highs (in real terms)
Why not set call strike above the current prices so in addition to the call premium you get the increase in price??
The goal is to make money on your puts. Getting assigned only binds your buying power and hence you want to get rid of your 300 shares asap.
@@hughjazz4936 for the wheel, most people claim it's a "cash secured put" meaning it's roughly the same amount of capital in the trade with the short put or the covered call
@smbcapital, how to maximize the options premium when you are selling?
Keep in mind this is a strategy, it only takes 5 minutes a month. If you take time to manage it weekly or daily, you will make more. Sure you can just buy and hold, but then you aren't investing time to actually make money on the prolonged downturns.
Spy trading at $455.30 today 2% down is $446 the Dec 29 put is $2.80. now where near the ~ $6 in this video. What is the trick to get the $6 premium?
Need higher vix and more volatility.
The trick is spy needs more volatility so you can and will risk more capital loss to make your income -- then you will be paid more nominally
Is that the SLC Temple?
I thought they're in NYC? Don't recognize it, though
You'd do better just buying the SPY dip at the beginning of the campaign and just holding. You'd have more favorable tax on long term income too when you sell in a year. 🤷♂
Iam newbie about option so my question why buy 2% below market? why not 1% or 10% or any other %
Probably a "realistic" number that will collect enough income to seem worthwhile (so not too far below) but that won't expose the portfolio to too much short volatility (so not too close to spot)
why not do a very wide credit spread toquirements lower risk and margin re
You could. That would offer one path to lever up
I think a pro would ask why you opened the cash secured put instead of a deep ITM covered call. You're almost guaranteed a lower return with the CSP
So basically you are yielding about 12% in 12 months. Inorder to earn 15K I need to give and get 130K through option exercises. Isn’t index ETFs (with covered calls if somebody like that option) lesser volatile then this strategy?
Unlikely the outright ETF is less volatile because the additional short premium and capped upside will reduce the range of return outcomes (also assuming this strategy is fully collateralized so is notionally equivalent to buy and hold)
It keeps going up because of money printing. It is asset inflation caused by the Fed buying bonds from the 24 primary dealers which are investment banks. That was then and this is now. It may not continue its upward movement if new money is not provided.
Most wealth is held by a small group, and they tend to be well-connected to policymakers.
Given the chance, they will continue to take care of themselves which means more money printing to keep their asset value high.
Otherwise their collateral for their businesses and lifestyles (their securities) might need to be sold at a loss, and this defeats the purpose of being wealthy and well-connected.
So unless there is a big signal for them to go risk off (eg, to engage in another large-scale wealth transfer like in 2008 or 2020 or 2023), the stocks should keep going up because that is what benefits the decision-markets most.
🎉🎉🎉🎉
What if you don't get assigned and the options are settled for cash?
SPY settles in shares. If you did this in SPX you simply roll before expiration.
You continue endlessly and one day or another all the money you accumulated by selling Put or Cash covered call will compensate any any loss from the stock itself
Inside review the video again. We address that exact point
🤯
How can you sell a put without owning one hundred shares?
Naked anything is far too risky ?
You don't need to own 100 shares to sell put. Put is an obligation to buy shares. You can either have cash ( cashed secure put) to buy shares if assigned on the put you sold or have the margin to sell a naked put.
@@tonny9168 yes but naked put’s can lead to infinite loss. Especially if you get assigned early.
There are so many details missed in this video. The amount of margin taken by the selling point is the most important thing. The unlimited loss is conveniently missed in the conversation...
The article says "cash covered". Therefore downside risk is the same as owning the 300 shares SPY. Also the loss is not "unlimited" with short cash covered puts. The stock can only go to zero. "Unlimited" loss would apply to short naked calls, but the risk is exactly the same being short the stock.
🔥😂
yeah if you have 130K! buy the course for $5000
It’s important to state the margin requirements for selling 3 SPY Puts and margins required to Hold 300 SPY in a RegT margin account. Most Retail Investors will not have the capital required !
I don't understand....you had to have over 130k in your account just to make 12k in a year, and you then had to pay short term taxes on that income. Just putting that 130k into SPY and doing nothing would have you making more than that to do nothing...AND you're not incurring the tax bill. What am I missing here???
That has more volatility and produces less income. Tbh, neither approach is great
This video clip failed to tell the viewers that selling CSP 03 contracts of SPY, one would need over $100K of capital.
Exactly, not many "NEW" traders have 130k to play with. If you want to help new traders use a stock they can afford. I see so many you tube video's "Options for beginners" and they start talking about stock that's over $100 a share, sure just sell 5 puts on this stock.
We noted that on the scorecard slides that the max capital is 135k which is the obligation to purchase 300 shares of SPY.
We are teaching the concept that can be applied to 100 shares on a lower priced stock. just replace SPY shares with another liquid lesser priced stock. Your premiums won’t be as large obviously.
Or you could trade options on /ES, which is 5 x SPY, but with SPAN margin only requires about $11 000 margin requirement (currently) if assigned.@@smbcapital
Well then then the repeated reassurance of SPY's upward bias goes right out the door. Isn't that a fundamental premise of this approach?@@smbcapital
Great strategy if you have $100K plus size account....not every retail trader can benefit from this unfortunately...
You can make the same profit with only 20K$ and selling put and calls on a weekly basis on a few stocks. I make between 1.5% to 2% per week.
This is a very dangerous video in the sense that they don’t even tell you what the cash secured amount is… well you’re trading on margin in a way because in his example the cash needed to secure the put is over $100,000, which he doesn’t tell you. Very, very misleading. He’s only telling you half of the story; the strategy itself is part of the wheel strategy and can work. But I wouldn’t trust anybody who doesn’t tell you exactly how they’re doing the strategy. These guys are trying to gin up some business for their firm getting people to think that you can make a lot of money with nothing down.
Iron condors will yield triple returns. This is just the lazy way of investing.
Who wouldn't want triple returns? Better load up before everyone else finds out.
mistake ...$120
Im not even going to bother watching this all of your videos are the same General advice you aren’t specific at all don’t teach anything you just tell people to do credit spreads
They need to use current data and track as you go.
This cherry ⛏️ pick back data is trying to Fool newbies.