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The cash secured put example I have highlighted below shows how we were able to generate extra income by selling options on an underlying stock.
Following the steps in our cash secured put strategy, we have been able to earn more income each month. We are currently on track to generate an extra $3,500 this year (2021) … just from selling options.
There are certainly some risks involved with selling options. But by following our strategy, I believe we have limited these risks enough where the income potential is worth the effort.
Let’s talk about this extra income for a minute …
I treat selling options like a part time job or side hustle. It doesn’t take much time and I can do it from home … which is a big deal.
All of the extra income that we are generating each month is eventually invested into our dividend income portfolio. These investments then turn into a mostly passive source of recurring income which we hope to live off of one day.
I consider the money we earn from selling options to be more active income. And unlike dividends, it is not recurring. But it is a way to grow our passive income.
Enough about passive income … let’s look at some real life examples of selling cash secured puts.
There are three different cash secured put examples that I have highlighted below. Each of these transactions involved the same underlying stock … but all had different outcomes.
Cash Secured Put Example – 3 Different Outcomes
We got serious about selling options (mostly puts) for income back in March 2021. Before that we did earn some options income, but it was sporadic and we didn’t have a plan.
The three secured put examples I have provided below were all sold against the same underlying stock – Palantir Technologies (PLTR).
This is a company that we are comfortable owning shares in … which is one of our requirements of selling secured puts for income.
We started out by setting aside $5,000 of cash in our brokerage account. These funds were required to sell cash secured puts.
In order to sell a put … our broker requires us to have enough funds in our account to buy 100 shares of the stock if the option is exercised.
Shares of PLTR currently trade around $25 (this could change). Based on that share price, we have the opportunity to sell out of the money puts on two option contracts at a time.
One last thing … most of these transactions were made with an expiration date that was one to two weeks out.
Here are the three different outcomes –
1 – Expired Put Option
This cash secured put example was one of the very first and most profitable trades we have made to date.
We sold one secured put on Palantir Technologies (PLTR) and profited $278.30 (after commission) in a week.
Here are the details of the transaction –
- Underlying Stock – Palantir Technologies (PLTR)
- Transaction Date – March 5, 2021
- Expiration Date – March 12, 2021
- Option Type – Put
- Action – Sold Put to Open
- Strike Price – $23.00
- Price – $2.79
- Commission – $0.70
- Premium Earned – $278.30
What does all this mean?
Back in March of 2021, we felt comfortable owning 100 shares of PLTR at $23 a share. For reference, the stock closed at $23.95 per share on March 5, 2021.
We took on the risk of agreeing to buy 100 shares of the stock at $23.
In return for this risk, the buyer paid us a total premium of $278.30 ($2.79 * 100 shares minus commission).
For reference, on March 12 the stock closed at $26.92. Since the stock closed well above the strike price, the option was not exercised and expired worthless.
We just earned $278.30 in about a week!
2 – Rolling Put Options
The next cash secured put example I want to highlight shows a roll up of the same company Palantir Technologies (PLTR).
Back at the beginning of March (2021), we sold another cash secured put on shares Palantir Technologies (PLTR). This time the strike price was $25.50 and the option was to expire in 5 days.
One day before the expiration date, we decided to buy back that put option at a loss and immediately sell another put option (same strike price). By rolling these options, we avoided having the put option exercised and being assigned the shares.
Here are the details of the first trade –
- Underlying Stock – Palantir Technologies (PLTR)
- Purchase Date – March 15, 2021
- Sell Date – March 18, 2021
- Expiration Date – March 19, 2021
- Strike Price – $25.50
- Commission – $1.39
- Total Loss – ($55.39)
The second part of the roll went as follows –
- Underlying Stock – Palantir Technologies (PLTR)
- Purchase Date – March 18, 2021
- Expiration Date – March 26, 2021
- Strike Price – $25.50
- Price – $1.65
- Commission – $0.70
- Premium Earned – $164.30
The net gain of these 3 trades was $108.91, broken down as follows –
- Sold Put #1 to Open – $49.30
- Bought Put #1 to Close – ($104.69)
- Sold Put #2 to Open – $164.30
In theory this could be done week after week after week with a stock that has weekly options available to trade. However at some point you could get in serious trouble with this method.
3 – Assigned Put Options
In this cash secured put example, I will show you how we were assigned 100 shares of the same company Palantir Technologies (PLTR).
We sold one secured put on Palantir Technologies (PLTR) and profited $258.31 (after commission) of premium in less than two weeks. This time however, we were obligated to purchase 100 shares of the stock for a total of $2,500.
Here are the details of the transaction –
- Underlying Stock – Palantir Technologies (PLTR)
- Transaction Date – April 12, 2021
- Expiration Date – April 23, 2021
- Option Type – Put
- Action – Sold Put to Open
- Strike Price – $25.00
- Price – $2.59
- Commission – $0.69
- Premium Earned – $258.31
So what happened here?
By April, we felt more confident owning shares of the company … even at $25 a share. For reference, the stock closed at $23.34 on April 12, 2021 … the date of our transaction.
This time we took on the risk of buying 100 shares of the stock at $25.
In return for this risk, the buyer paid us a total premium of $258.31 ($2.59 * 100 shares minus commission).
On the expiration date (April 23, 2021) the stock closed at $23.41 … which was well below the strike price. This time the buyer exercised the option and we purchased 100 shares at $25 each.
At the time of this writing (August 2021) we still own these 100 shares of PLTR. And in that time, we implemented another income generation strategy – selling covered calls.
Selling covered calls on these shares has allowed us to earn an additional $184.10.
Selling Cash Secured Puts for Income
Overall, selling cash secured puts on Palantir Technologies (PLTR) has been a success. We could have certainly taken different steps to generate even more income … but we are still tweaking our strategy.
Note – Back at the beginning of March (2021) we set aside $5,000 of cash to sell secured puts. This means that while it may be a bit riskier … we have the ability to sell multiple secured put options against the stock … assuming the strike price is $25 or lower.
Between selling cash secured puts and then a few covered calls (after owning 100 shares) … we have added an extra $921.71 of income (through August 2021) so far … just from this company.
At the time of this writing, we still own 100 shares of PLTR and are actively selling covered calls against those shares.
We also have one open secured put option contract on PLTR at a strike price of $25 set to expire in less than a month. There is a cash balance in our brokerage account of $2,500 to cover in case the shares are assigned.
If that put option expires worthless, then we will likely sell another one. We may also choose to roll this option into another contract. Or if the shares are assigned, then turn around and sell even more covered calls.
Accounting for the income we have earned selling options on PLTR, we now own 100 shares of stock each for an adjusted $15.78.
$2,500.00 – $921.71 = $1,578.29 or $15.78 / share
A nice long term goal would be to earn enough income by selling options to pay off these shares completely.
I plan to continue to keep these cash secured put examples updated with the latest information.
Risks of Selling Put Options
Please do your research when you are selling options for income. It can be a very risky strategy if you don’t fully understand how options trading works.
We prefer to (currently) sell put and call options against shares of Palantir Technologies (PLTR). While not a dividend stock, this company has the potential (we think) to become a great growth stock. This does not mean we recommend it to anyone reading this.
The trading on this stock has a lot of volatility … which is good and bad.
Selling options on volatile stocks can lead to larger premiums earned and profits. On the flip side … it can lead to huge losses as well.
As always … make sure you do your research before investing. Please feel free to reach out if you have questions or my examples need clarification.
