Facts:
- You sell a put at a certain strike price, where you do not mind purchasing the security if it were to be exercised
- Similar to the buy-write, ideally you want to sell puts at high levels of volatility, in order to earn a higher premium
- “Cash-secured” = You will have the necessary cash in your account to own the security if the buyer of the option where to exercise it
- It provides an alternative to setting a limit buy
- While a limit buy order at a price below the current market price may never get filled, this strategy at least provides a means to gain minimal income
- Maximum Gain –> Premium
- Maximum Loss –> Strike Price – Premium
Bias:
Bullish Bias on an intermediate or longer term duration
- Essentially you want to be long of a security, but its price is a bit excessive at the moment. As a result, you sell a put at a lower price and earn an income while waiting for the stock to potentially drop to those levels. This premium reduces your cost basis if you were to be assigned the security.
