In this video, I’m going to teach you how to sell cash secured puts for passive income, in any market condition.
Selling a put option allows an investor to potentially own the underlying security at both a future date (the option expiration date) and at a price lower than they would have paid for it at market price.
Selling cash secured puts immediately creates premium (income) to the seller, who keeps that money whether the put is exercised upon or not.
An investor who sells put options in securities that they want to hold long-term anyway benefits in two ways.
One way is that they collect the premium no matter what (if the contract is exercised or not).
The other way is that if the contract is exercised, they are receiving shares of a security that they wanted to hold anyway at a lower price than the market price at the time of writing the contract.
This video will show you exactly how to sell cash secured puts on the Charles Schwab platform, but you can do this with almost any other brokerage that allows options trading.
Watch until the end of the video and click the like button if you haven’t already!
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⏰ Timestamps ⏰:
0:00 – Intro
0:35 – How To Sell Cash Secured Puts On Schwab
2:43 – Options Contract Overview
5:14 – How Many Contracts Can We Write
6:29 – How To Calculate Our Cost Basis
7:39 – Getting Shares At a Discount
8:32 – How To Calculate ROI
9:40 – Premiums on a Volatile Stock
12:15 – WBF University
12:45 – LOL
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My mission is to provide my viewers with actionable content that enables them to create financial wealth. My videos reflect my real-world experience as a real estate investor, stock market investor, student of finance, and entrepreneur.
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Hey everybody welcome back to white boy Finance in today’s video I’m going to Teach you how to sell cash secured puts On the Charles Schwab platform for Passive monthly income or it could be Weekly could be every three days it just Depends on the underlying asset that We’ll be trading uh in this video I’m Going to show you two assets one is Going to be a very low volatile dividend ETF from Charles Schwab the other one is Going to be a high-flying growth stock That everyone knows what it is I’m going To show you how that can drastically Change the amount of Premium or the Amount of income you collect every time You write these contracts so let’s get Right into Charles Schwab this is their Web app they do have a you know mobile App they do have a tablet app but this Is just the easiest way for me to record This and show you this information so in The top left corner you’re going to see A tab called trade and you’re going to Do uh you’re actually going to scroll Under options and click on chains once You do that you’re going to see this Screen so this is actually being Recorded September 14th of 2022 they may Actually change the format of this if You actually read what’s in this Highlighted text right here so if you’re Watching this a year two or three from Now after the time this recording this
May look drastically different so for The low volatility dividend ETF we’re Actually going to be trading schd keep In mind with cash secured puts there are A couple things that need to happen you Have to have the money in your brokerage Account as the collateral to be able to Write these options contracts okay it’s No different than getting a mortgage for Your house you put 27 20 down or Whatever you want to put down the house Is the collateral right that’s what’s Able to get you your loan if you can’t Pay the mortgage your house gets Foreclosed on this is a similar concept You need to have the money in the Brokerage account in order to be able to Write these in the first place so Typically what I like to do is we’re Going to start with the expiration date Of the contract I like to go to the Third Friday at least 30 to 40 days out In this case this is October 21st 2022. So I select that and then we’re going to Go 16 strikes around the money and then We’re going to start with the Greeks Okay so what I like to look for is Implied volatility and also Delta if you Look at the Delta we’re going to be Shooting for a negative 0.30 or a 30 Delta if you will the closest one to That is going to be either the 69 strike Price or the 70 strike price just for Round easy numbers in order to do math
Later in this video so you understand What’s going on I’m going to select the 70 strike price it’s for October 21st 2022 Seventy dollar strike price and what We’re gonna do is we’re going to sell to Open okay so I’m going to click trade Now we can actually see this entire Options ticket if you will so just a Quick quick recap schd right now is Trading at the time of this recording uh 71.60 a share uh you’re gonna put in Your symbol AS CHD put strategy Expiration date you can always change This strike price you can always change This action we are selling to open so What does that mean this is not going to Be a tutorial on cash secured puts but What that means is we are selling to Open we are writing the contract we have The big pile of money we’re able to Write the contract for someone else to Purchase from us for a specific uh Dollar amount or premium okay so we are The insurance company we are the house We are the casino if that makes sense We’re the one writing the contract so What does that money come out to be so If we go here we can actually click on a Dollar twenty so so remember this is per Share and every options contract Controls 100 shares of the underlying so If you look at one contract the Deliverable for one contract is a
Hundred shares of schd that’s what this Number is here where my cursor is so Let’s figure out a couple things first So we know that we’re getting paid a Dollar and 20 cents per share in premium Uh times 100 shares so if we stick with One options contract with a seventy Dollar strike price we are collecting 120 dollars in premium in the bottom Right hand corner of the screen now I Actually have one hundred thousand Dollars uh sitting in this account okay This is real money this is not a paper Account so if I wanted to trade more Than one options contract how would I be Able to figure out how many contracts I Can trade okay and remember with with Cash secured puts you don’t mind these Options Um contracts meeting the strike price Meaning that if these hit 70 bucks a Share I need to buy these shares okay And I don’t mind buying them because This is an underlying asset and which I Want to own forever or for a very very Long time so two things can happen here Either our strike prices met the seventy Dollars is met Um and we have to actually execute on 100 shares in this scenario because it’s One options contract for 100 shares or This this never reaches seventy dollars This options contract is never executed It’s out of the money and we keep the
Premium so no matter what we’re making 120 bucks it just depends on where this Share price goes and how much further it Goes under seventy dollars if that makes Sense So what we want to figure out is how Many of these contracts can I write you Know every 37 days or 30 days or 45 days Or so in this case it happens to be 37 Days so we’re going to go to I have a Hundred thousand dollars sitting in this Account we’re gonna go to a calculator I’m going to type in hundred thousand Dollars Divided by what am I dividing this by Seven thousand dollars why is that well Hey Marco this is 70 strike price Wouldn’t it be 70 bucks no because Remember each options contract is for a Hundred shares so you move the decimal Place over two places tens hundreds each Uh contract is going to be seven Thousand dollars so I’m going to divide This by seven seven thousand excuse me I Can afford to buy 14 uh contracts With a hundred thousand dollars okay So I’m gonna put 14 I’m gonna click on The mid price right here because it’s it May it’s the easiest way for that to get Executed for the most part Um or the fairest if you will for both The buyer and the seller and we’re going To collect 1 680 in premium okay so if These expire worthless in 37 days I’m no
Matter what making one thousand six Hundred eighty dollars so let’s look at Our cost basis if these do execute at Seventy dollars per share remember schd Can go to 50 bucks a share 20 bucks a Share a dollar a share it doesn’t matter You are writing this contract and you Are on the hook for seventy dollars per Share for 1400 shares because we’re Writing 14 contracts on this so if I go To my calculator say this does execute Say I bought at seventy dollars a share Times fourteen hundred a share it should Be ninety eight thousand dollars we Already know that minus the premium We’re collecting remember we have 98 Grand into this is collateral but we’re Getting paid 1680 in premium 1600 80. So our cost basis is going to be ninety Six thousand three hundred and twenty Dollars divided by fourteen hundred Shares 14 contracts we effectively will Own schd 1400 shares for 68.80 makes Sense the seventy dollar strike price Minus the premium sixty eight dollars And eighty cents so the cool thing about This is is if you want to genuinely own The underlying the schd and you don’t Want to own it for 71.60 it’s current uh share price you Can get paid to buy a stock that you Want to buy in the first place at a much
Lower cost basis makes sense so you at This point You would simply just go down to review Order it would allow you to review it You’d sell to open do all the good stuff You have all the account information That I have to black out now what a pain In the butt and there you go you would Click place order right here so voila That’s it you just created the order for 14 options contracts that need to be Bought by another party otherwise They’re never going to get executed upon And you won’t collect that premium but You just made yourself one thousand six Hundred eighty dollars by pretty much Just having money in the bank So what you’re probably thinking Yourself hey Marco this is Penny’s in Front of a steamroller why am I risking 98 000 in collateral to collect 1 680. Well let’s take a look at that So let’s take a look at one thousand six Hundred and eighty uh sorry I forgot to Change the screen uh divided by ninety Eight thousand dollars okay remember We’re collecting 1680 in premium risking 98 000 to do what times 100 To make 1.71 percent wow you’re sitting There thinking to yourself hey I make 1.9 percent of my savings account I make Two percent of my Capital One 360 Account well guess what this was in 37 Days so you have to annualize this so
I’m going to multiply this by 12. Obviously there’s 37 is more than you Know 30 days in a month for example but Just for easy numbers multiply it by 12. Realistically our return is 20.57 Percent if we can do this consistently All year for 365 days or 12 months does That make sense so our yield is Incredibly High just for having that Money so you can make two percent in a Bank account or you can make 20.57 Percent Um just by having that hundred grand and Being able to do this on that CHD so now What we’re going to do is we’re actually Going to take a look at the premiums on A much more uh volatile stock okay so This is Tesla we’re all familiar with Tesla uh we’re gonna pick the same Expiration date okay we’re gonna go to October 21st 37 days from now we’re Gonna go to 16 strikes we’re gonna go to Check out the Greeks I may actually I Need to go a little bit bigger and we’re Going to look at the negative 30 Delta For Tesla so the negative 30 Delta for Tesla is a strike price of 278.33 so I’m going to select that I’m going to go back up here we’re going To do the action of selling to open That’s what cash secured puts are and Now we’re going to take a look at the Premium for something like this so if You remember we were getting
1680 for 14 Schd contracts we’re getting 1235 just For one Tesla contract but remember our Strike price here is uh 278.33 so if you move the decimal place Over two places each options contract We’re gonna have to come up with 27 833 dollars in collateral so if I go Back to uh my handy dandy calculator 100 000 divided by uh let’s just do 27.9 for Easy numbers I can only afford to buy three of these Okay so if I do three of these Uh I’m basically putting up uh close to Like 85 90 grand to make three thousand Seven hundred and five so you can see With just a way more volatile stock that Has a lot of implied volatility going up And down higher highs lower lows as Opposed to a CHD which is kind of just Like chugging along here you can see how The premium has changed for the same Delta and the same expiration date 37 Days away So I hope this uh helped you uh you can Actually it’s pretty easy to trade these You just go to verify order order Received order placed that’s it done we Already went through that so that’s how You do it through Schwab you can do this Through uh Robin Hood Weeble uh Fidelity TD Ameritrade doesn’t really matter There’s a million places think or Swim
Um but uh my point is I just wanted to Show you how to do this on Schwab and Also the difference in premium between Schd and a stock like Tesla so if you Got value out of this video please give The video a thumbs up uh please uh Subscribe and click the Bell Notification if you haven’t already uh Options we will have an options Professor in whiteboard Finance University I already know who it is he’s A friend of mine he has a really big YouTube channel I’m not going to say who It is right now but he’s going to be the Options professor in whiteboard Finance University please check that out if you Haven’t already it’s my private school My private Community private access to Me what I’m buying selling trading Whatever macroeconomics all that good Stuff so as always thank you so much for Watching and have a prosperous day Sometimes I like to mess around with These calculators just to see like if I Had you know millions of dollars just Sitting in the brokerage account you Know how many of these you know cash Secured puts you could actually write And see how much premium you could Collect imagine if you had like so if I Did 10 contracts this would be 270 Thousand dollars this would be 2.7 Million imagine just having like 3 mil In here and just collecting 123
000 in 37 days but then it get X then it Gets exercised on you and you’re just Like okay now I hold you know 10 000 Shares of Tesla Foreign Must be nice