To The Moon

Cash-Secured Put Selling and My Successful Trade

What Is a Cash-Secured Put?

Selling a cash-secured put involves committing to purchase a stock at a specific strike price by a set expiration date. As a seller, you earn a premium upfront in exchange for the obligation to buy the stock if the market price falls below the strike price. To ensure you can meet this obligation, you need enough cash in your account to cover the purchase, making this a relatively conservative options strategy compared to naked puts.

My Range Trading Strategy

In this particular trade, I sold a PLTR PUT with a strike price of $70.00 on December 3, 2024, at a premium of $2.71. This means I agreed to buy 100 shares of Palantir at $70 if the option was exercised, and in return, I received $271 in premium income. Shortly after, I bought back the same put contract on December 4, 2024, for $2.50, effectively closing the trade and locking in a profit of $21 (the difference between the sell and buy price).

This quick trade utilized the market’s short-term volatility, as Palantir’s stock price fluctuated in a predictable range between $65 and $72. This “range trading” strategy capitalized on the stock bouncing off its support levels without ever threatening to breach the $70 strike price. My profit of $21 on a cash-secured obligation of $7,000 represents a return of approximately 0.3% within a single day.

I $PLTR 20241213 70.0 PUT$ 

Risk and Reward

• Reward: Selling cash-secured puts allows you to generate consistent income from premiums. In this case, earning 0.3% in one or two days might seem modest, but when annualized, the returns could potentially exceed many traditional investments. Additionally, I was prepared to buy Palantir shares at $70, a level I was comfortable owning it at.

• Risk: The primary risk is that the stock price could drop significantly below the strike price. If Palantir had fallen to $60, I would still be obligated to buy it at $70, resulting in an unrealized loss of $1,000 per 100 shares. While the premium received reduces the breakeven price slightly, it does not eliminate the downside risk. This highlights the importance of choosing stocks and strike prices aligned with your investment goals and risk tolerance.

A Joyful Trade and Personal Reflection

This trade is not only a reflection of disciplined execution but also a reminder of how small, consistent wins can add up over time. For me, this was a satisfying application of technical analysis and market timing, as I managed to earn $21 in a day while keeping risks within my comfort zone. It’s essential, however, to approach options trading with caution and proper education.I 

Disclaimer

This account is purely for sharing my experience and serving as a personal trading journal. It is not financial advice. Please consult a licensed professional before engaging in options trading, as the risks can be significant. 

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