Getting "Put" in Your Place

Hello, & Happy Wednesday.

Buckle up because today is Part 2 of the Cash Secured Puts Series 🔥

This is not investment advice and is intended for entertainment purposes only.

Getting “Put” in Your Place

There are a lot of ways to skin a cat and there are a lot of ways to buy stocks.

You could just have the cash and buy the shares you want at market. Or you can get fancy with it and add some order specifications to the timing and nature of your buy by using a limit order (or an even more complicated order type - a lot of them exist).

But in the scenario where you have the cash on hand to buy 100 shares of a company and want to do so at a certain price that’s (obvi) below the current market price, you can use a cash secured put.

It's a maneuver that sounds more like a wrestling move than a financial strategy, and it's about as close as you can get to a financial bear hug.

Cash Secured Puts vs. Limit Orders

Writing a cash-secured put is like telling the market, "I bet you won't go lower than this price, but if you do, I'm game to buy."

It’s a move that requires you to set aside enough cash to buy the shares if the stock price hits your target.

But what’s the best part?

You get paid upfront for making this bet.

Yep. Another premium opportunity for the taking.

Now, why would you possibly do this instead of just setting a buy-limit order like a normal trader for buying an even lot?

1. Getting Paid to Play

First off, writing cash-secured puts is like having a discount coupon that pays you. Instead of just waiting for your limit order to hit, you're earning money while you wait. It's the financial equivalent of getting a rebate for every minute you spend in the checkout line.

Who wouldn't want to get paid for stocks you were going to buy in an even lot anyway?

2. Forced Savings Plan

Sure, you might have preferred the cash, but now you've got something valuable. If you're "forced" to buy the stock, it's because the price has dropped to the level you were comfortable with… Just like it would’ve if you had set that price on a limit order.

Plus, you got paid to agree to this deal in the first place.

Premiums, baby!

It's like being rewarded for your patience and discipline.

3. The Emotional Rollercoaster

Using a limit order to buy shares is like riding a kiddie rollercoaster: it's safe, predictable, but also quite underwhelming.

Writing a cash-secured put, on the other hand, is like strapping yourself into the front seat of the financial equivalent of the Log Ride at Disney World.

There's the thrill of the premium coming in, the suspense of watching the stock price, and the exhilarating (or terrifying) possibility of getting the stock "put" to you at a discount.

4. Flexibility and Strategy

Lastly, cash-secured puts offer a smorgasbord of strategic flexibility that limit orders can only dream of. You can adjust strike prices, expiration dates, and even roll your puts to manage risk and maximize profits.

All of this while your cash is still in your money market account earning interest.

Limit orders, meanwhile, are more like microwave dinners: convenient but not exactly gourmet.

So next time you're pondering your entry strategy for an even lot, ask yourself: do I want to ride the carousel, or am I ready for the rollercoaster?

If you choose the latter, writing cash-secured puts to buy even lots may become your acquisition love language.

Weekly Tidbits

• Fed January Minutes Drop: Here you can check out all the tea on potential rate cuts from January’s Fed meeting.

• Card Empire: Capital One announced it’s agreement to buy Discover Financial Services for a nice $35 Bil.

• The Earnings Call of the Moment: Everybody is highly anticipating $NVDA’s earnings call today after market close.

Meme of the Week

Credit @MorningBrew