Looking For Cash-Secured Equity Put Candidates?

Looking For Cash-Secured Equity Put Candidates?

Summary

  • Cash-Secured Equity Put (CSEP) is an income-generating, discount-buying strategy that option traders have been utilizing for years.
  • Selling a CSEP has essentially the same risk/reward characteristics of the covered call and may provide the same type of income streams and returns as covered calls.
  • This is a bullish strategy typically meant for bullish to sideways-trending stocks and equity markets.

How does getting paid to potentially buy a stock at a discounted price sound? How does selling something you don’t own and collecting a cash premium sound?

The answer to these questions might just be the Cash-Secured Equity Put, or CSEP. The CSEP is an income-generating, discount-buying strategy that option traders have been utilizing for years. It is very similar to an options trading strategy that you may already be familiar with, selling covered calls against long stock in your portfolio. Just like covered calls, this is a relatively conservative option strategy where the gains are limited and the risks can be substantial if your stock dramatically falls in price.

Selling a CSEP has essentially the same risk/reward characteristics of the covered call and may provide the same type of income streams and returns as covered calls. Therefore, like the covered call, this is a bullish strategy typically meant for bullish to sideways-trending stocks and equity markets.

So what is a CSEP and how does it work?
A CSEP is an options strategy where you sell a put option at the strike price of your choice and get paid a cash premium for the transaction. In exchange for that cash premium, you take on the obligation to buy shares of the underlying stock (100 shares for every standard put contract) at the designated strike price should the stock close below the strike price at expiration.

Please be aware that equity options can potentially be assigned at any time prior to expiration. The cash-secured component of the trade, where CSEP gets its name from, dictates that the funds required to purchase the shares at the strike price would be held and unavailable to trade until the position is closed or expires.

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