You Get the Best of Both World$

It’s Wednesday, my dudes!!!

& also Part 3 of our Cash Secured Put Series.

Buckle up… this one is a little niche but requested by multiple readers.

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

You Get the Best of Both World$

If you missed the first two parts of this series or are new to Stonk Enjoyer (welcome!), we discussed the basics of a cash-secured put and why it can be used to buy an even lot in place of a limit order.

For the final part of this series, I want to ensure that we discuss the logistics of using a cash-secured put instead of just holding the cash you would want to buy in a money market fund.

When it comes to managing personal investment strategies, individuals often face analysis paralysis from so many instruments to choose from, each with its own risk profile and potential returns.

Two such options are cash secured puts and money market funds.

The Elusive Cash Secured Put

Cash secured puts are a proactive options strategy where an investor sells a put option for a premium on a stock they are willing to own, with the sale backed by collateral to purchase the stock if it reaches a certain price.

However, it carries the risk of having to buy the stock at a price above the market value if the stock price falls significantly.

You also run the risk of missing the boat. Much like with a limit order, you can miss out on gains if you wait on the sideline for the stock to hit a certain price before you buy and it proceeds to climb upwards.

The Stability of Money Market Funds

Money Market Funds, on the other hand, are investment vehicles that invest in short-term debt securities.

They are known for their stability and liquidity, offering investors a place to park their cash with a modest interest return. These funds are considered “low risk”, making them an attractive option for conservative investors or as a temporary haven during periods of market volatility.

Risk & Returns

Cash Secured Puts and Money Markets are extremely different and almost don’t even need to be compared. But in the scenario where you may have cash sitting on the sidelines to buy an even lot of shares at a certain price, then you may consider using a cash secured put instead of just having the cash in a money market fund.

Cash secured puts can offer higher potential returns through premiums and the acquisition of desirable stocks at lower prices. However, this comes with the risk of market volatility and the obligation to purchase the stock at a potentially unfavorable price.

Money market funds are like fat jeans, they’re always there when you need them but they're nothing fancy.

The cherry on top of the whole ice cream sundae is that at most broker-dealers where you hold your portfolio when you sell a cash secured put, your cash still sits in the money market fund earning interest.

So you really can get the best of both worlds with a cash secured put if you are willing to take more risk on a certain position. You can collect a premium and have your cash earning interest, so a win-win… but with the caveat of a little more risk.

Both cash secured puts and money market funds have their place in this crazy world.

BUT, as with any options strategy, there is always risk.

Weekly Tidbits

• The S&P having its moment (again): Last week the S&P 500 had its best week of 2024.

• Welcome to the Dow: Amazon ($AMZN) replaced Walgreens ($WBA) and was added to the Dow Jones Industrial Average, an index that tracks the prices of 30 different publicly traded companies.

• The Mother of All Meme Stocks: Reddit, a social media site where meme stocks were born, announced its IPO, and get this - Reddit users have a chance to get a piece of the pie at its initial price. This is unusual since it is typically reserved for institutional investors.

• Bitcoin? More like LITcoin: Bitcoin ($BTC) hits the $60k mark for the first time since November of 2021.

Meme of the Week

Credit @Buccocapital