Disclaimer: This is not financial advice. I’m just explaining an additional way that people can generate extra monthly income. I would encourage you to only execute trades like this under the oversight of a experienced conservative trader.
A cash secured put is another way to generate consistent monthly option income.
This is how I’m generating the $1,000-$2,000 per month right now.
A cash secured put is an option trade where you earn a premium by committing to buy shares of a company at a lower price by a certain date.
Here’s an example:
- XYZ stock is currently trading at $100/share
- You want to own 100 shares of XYZ stock at $80/share
- You have $80 * 100 shares = $8,000 available to make this purchase
- You could sell a cash secured put option for a certain premium, let’s say $250, and you’re committing to buy 100 shares at $80 if it were to drop to or below that price by a certain date
- If XYZ either goes up or doesn’t drop all the way to $80, you keep the $250 premium and your $8,000 since the shares didn’t drop to $80
- If XYZ goes down to $80 or below, you keep the $250 premium and you spend your $8,000 buying 100 shares of XYZ at $80
- The risk with this trade is that XYZ could fall way below $80 by the due date. That’s ok with me, though, because I’ve determined that I like XYZ at $80 and I’m willing to hold those shares for the long-term.
I sell multiple options like this on several different companies that I like each month. Together those premiums generate between $1,000-$2,000 each month and it only takes a few minutes to place those trades.
What I like about this strategy is it allows me to get paid while waiting for stocks I like to drop to a lower price.
Options Trading definitely has risks, as I’ve shared in this series, but the risks to me have been worth the premium that I’ve been paid for taking those risks.
While my main strategy so far has been selling cash secured puts, when some of the stocks I like drop to levels where I am required to buy the shares, I’ll then sell covered calls against those shares and make additional premium while I wait for the shares to go back up.
One other advantage of cash secured put options is that my $8,000 (in the example above) is sitting in a money market fund at Fidelity while it’s waiting for the stock to drop to $80/share (in the hypothetical example above). So, I’m earning the premium for the option plus interest on $8,000 I have reserved to purchase the shares if it drops.
This has been a great way to make some extra money in my spare time!
