I sell cash-secured puts and covered calls. Those two labels matter, because they describe the capital I commit, not just the option type.
When I sell a put, I am agreeing that I may have to buy the shares at the strike price.
I therefore keep enough cash available to make that purchase.
For example, if I sell one US$90 put covering 100 shares, I need to be prepared to spend US$9,000 if I am assigned.
Every put I sell is cash-secured. I do not sell naked puts.
When I sell a call, I already own the shares that I may have to sell.
For example, if I sell one covered call, I already own the 100 shares represented by that option.
If the call is exercised, those shares may be sold at the agreed strike price.
Every call I sell is covered. I do not sell naked calls as part of this strategy.
Cash
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Sell a cash-secured put
I choose a company I would genuinely be willing to own and a price at which I would be comfortable buying it. I reserve enough cash to buy the shares.
Then one of two things happens:
- Put expires · I keep the premium · cash remains available · I wait for another attractive opportunity
- I am assigned · my reserved cash is used · I become a shareholder
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Own shares
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Sell a covered call
Because I already own the shares, I may sell covered calls against them.
Then one of two things happens:
- Call expires · I keep the premium · I continue owning the shares
- Shares are called away · my shares are sold at the strike price · I receive cash · the cycle can return to cash-secured puts
This is not an automatic loop. I only sell another option when I believe the company and valuation make sense.
Cash-secured put risk. Keeping enough cash for assignment prevents the position from depending on borrowed money, but it does not remove investment risk. If I buy shares at a US$90 strike and the company subsequently falls to US$50, the premium I collected may be small compared with the decline in the shares.
Covered call risk. Because I already own the shares, the call is covered. The main trade-off is that if the shares rise substantially above my strike, I may still have to sell them at the strike price and therefore give up some upside.
Capital concentration. Cash-secured does not mean risk-free. A large position can still expose substantial capital to one company.
Opportunity cost. Capital reserved for a cash-secured put cannot simultaneously be used elsewhere.
Business risk. The largest risk is ultimately that my judgment about the company is wrong and the underlying business deteriorates.
- 91% of the options I sold were set to expire within two weeks49 of 54
- About half of the options I sold expired, so I kept the payment and nothing else happened29 of 54
- Some cash-secured puts were assigned, and I bought the shares9 assigned
- Occasionally I buy long-dated call options instead, as a separate bet3 trades
Worked out from my resolved trades (sold options only for the first three lines).
This describes what I do. It isn’t a system to copy, and it isn’t advice.