I don’t like paying full price for anything and stock equities get no exception so I’m going to share with you how I buy equities at a discount and get paid to wait.
Selling Cash Secured Puts
The image below shows cash secured puts I sold at the start of April. I like to “ladder” my puts so I sell puts into the future 30, 45, 60, 90 or so days out. Sometimes I’m limited by the option availability on the calendar which was the case for October puts listed below.
By selling puts I collect premiums on the promise that I will be forced to buy that equity at a certain price. In the case above, I am committed to buying SCHD at $29.5 x 100, $29 x 100, $29 x 100 , $28 x100.
On average, I am committing myself to buy 400 shares at an average cost of $28.87 for a cost of $11,550. The $11,550 is the amount of cash you need to have in your account to buy all the shares if all assignments took place.
Unless there is a massive stock correction though, it is unlikely that I will get assigned on any of these shares and that’s fine too. I get to keep the premiums and earn interest on that cash or invest it onto something else, usually sell more cash secured puts.
As you can see, my current average cost basis on this particular account is $27.33. SCHD currently generates a dividend of 3.4% and by selling cash secured puts or covered calls, I can bring that return up to 6% or a bit higher.
Close At 70% Return
One of my rules is to close trades once they reach 70% return and some of these are approaching those rates with most of them currently at 50% return.
I do have an app for calculating the optimum strikes and premiums now but it’s just as easy to download the data and upload it to your favorite chatbot and asking it to find optimum cash secured puts.
Share The Wealth
Are you trading cash secured puts to buy equities at a discount or get paid to wait?