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Tactical Cash-Secured Put Rules
Weekly Edition: April 24th, 2025
Market Movements
Weekly Return | Current Level | |
|---|---|---|
S&P 500 | 3.06% | 5,560.83 |
NASDAQ | 3.44% | 17,461.32 |
DJIA | 1.79% | 40,527.62 |
VIX | -15.04% | 24.17 |
Russell 2000 | 1.99% | 1,976.94 |
*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.
News Snapshot
Wall Street Braces for Apple Earnings and Jobs Data Amid Market Dip
Will Tech Earnings Pop or Flop? Options Traders Are Betting Like It’s Vegas
Big Bets on Steel Tanking – Because Apparently Rust Never Sleeps
Morgan Stanley’s 2025 Forecast: Meh With a Side of Volatility
Options Trading: Where the Lessons Are Expensive and the Regrets Are Free
TL;DR
The markets have brought a mix of anticipation and apprehension. U.S. stock futures dip as investors braced for a wave of key updates—namely, Apple’s earnings and the latest job market data. The options market, always a bit of a crystal ball with attitude, lit up with activity around Amazon, Meta, Microsoft, and Apple, suggesting traders are prepping for anything but a quiet earnings season. Let’s just say, there’s a lot of hedging going on—think risk management with a side of mild panic.
On the industrial front, United States Steel isn’t exactly the market’s sweetheart at the moment, with bearish options activity hinting at doubts about its near-term prospects. Meanwhile, Morgan Stanley’s 2025 outlook offered a measured dose of optimism—expect gains, but only if you're looking in the right places, and expect volatility no matter where you look. Lastly, a cautionary tale from a young investor who learned that trading options without the proper guardrails can be a fast track to financial regret. In today’s markets, the old rule still applies: know the risks, or learn them the hard way.
“Good-To-Know’s”
Extrinsic Value - This is the portion of the option’s price that is made up of time value and implied volatility. It is essentially the potential for the options value to change. As expiration approaches, the extrinsic value decays to 0 (Good for us sellers).
OTM (Out-of-the-Money) options have only extrinsic value because they wouldn’t be worth anything if they expired today. ITM (In-the-Money) options, on the other hand, have both intrinsic and extrinsic value. A simple way to think about intrinsic value is this: if the option expired right now, how much would it be worth? For ITM options, that value is the gap between the strike price and the current price of the underlying stock.
Quote(s) I Like
“The man who can master his time can master nearly anything.”
“When the country lives on borrowed time, borrowed money and borrowed energy, it is just begging the markets to discipline it in their own way at their own time. Usually the markets do it in an orderly way except when they don’t.”
Thought Throttle
Just when you think you’ve figured the market out, it has a way of humbling you—fast. Many assume that selling cash-secured puts (CSPs) is as simple as collecting premiums and sitting back. Think again.
There’s much more going on beneath the surface. Choosing the right strike, managing your position size, and knowing when to exit are all subtle but critical decisions that can dramatically impact your risk and your returns. Utilizing the CSP effectively is not about being flashy—it’s about being consistent.
In this edition, we’ll break down a handful of practical, often-overlooked tips that every CSP seller should keep in their back pocket. Whether you're just getting started or tightening up your process, these principles will help you trade with more clarity and control.
Set a Target: Aim to Collect x% Per Month
Set a realistic monthly return target—maybe 1%, 2%, or 3%—based on your risk tolerance and portfolio size. Let this goal guide your trades. It keeps you from overtrading during dry spells or undertrading when the premium is juicy.
Once you determine your number, stick to it. Don’t chase trades just to “stay active.” The market will always offer trades, but not all will be worth taking. Discipline in your income target helps you become process-driven rather than emotionally reactive.
Note: It’s not an exact science. Look at your performance and what other traders aim for. Personally, I like 2% per month. Find your number and loosely anchor to it.
Sizing: Full Assignment Shouldn’t Exceed 5-10% of your Portfolio
One of the golden rules: Don’t let one CSP trade blow up your portfolio. If you’re assigned, make sure the total value doesn’t exceed 5–10% of your capital. This keeps you diversified and nimble.
This keeps you nimble and diversified. Overallocating to one name (except in some cases) can lead to getting crushed in drawdowns. When volatility spikes and prices drop, the last thing you want is to be stuck holding a bloated position you can’t unwind without serious pain.
Look for Bid-Ask Spreads that are Tighter than X%
Wide bid-ask spreads can quietly eat into your returns. I like to target options with bid-ask spreads tighter than 7%, ideally under 3%. This helps ensure you’re not giving up too much edge just to get in or out of a trade. Tighter spreads also suggest better liquidity and healthier market interest.
A good rule of thumb: the more volume an option has, the tighter the spread will usually be. Don’t force trades in illiquid tickers where you’re the only one on the field. Better execution means better outcomes—period.
Note: This rule becomes particularly important when implementing multi-leg strategies.
Target Profit Capture %
If your option trade is up big—say 50–75% of the premium collected—it’s often a great time to close or roll. There’s no need to squeeze every last penny out of a contract and expose yourself to unnecessary downside. Capture the win and redeploy the capital.
Freeing up capital earlier also allows for compounding. A trade closed at 60% gain in two weeks is better than waiting four more weeks for the remaining 40%—especially if you can roll into another setup with good premium. Play smart, not greedy.
Find a number that suits you and stick with it.
Keep Track of Your Trades and Where You Stand
Track every trade. Not just entry and exit, but why you entered, how you sized it, and how you felt when you made the move. Without records, you’re flying blind. The edge goes to those who treat their portfolio like a business.
You can’t improve what you don’t measure. Know your win rate, your average return per trade, and how much risk you’re consistently taking. Own your numbers, or they’ll quietly own you when drawdowns hit.
Trade Mechanics
Earnings season is upon us—as I’m sure you’ve heard (unless you’ve been living under a rock). One name that stands out among the upcoming reports is AMD.
AMD is set to report earnings on May 6th, and the options market is currently pricing in a move of approximately 10% (~$9.70) from its current share price of $96.93 (as of 2:10 PM on Tuesday, April 29th) in either direction.
If you believe AMD will continue its downtrend—a trend it's been in since last October—one possible trade idea is a bear call spread, structured near the edge of that implied move range.
Here’s an example:
Sell the May 9th $106 Call for around $1.66,
Buy the May 9th $110 Call for about $0.99,
This nets you a $0.67 credit, or $67 per spread,
And you’re risking $333 (the $4 width minus the premium received).
Your break-even on the trade is $106.67, which is just slightly above the upper edge of the implied earnings move ($106.63). If AMD stays below $106 through expiration, you keep the full $67. If it rises above $110, you take the max loss of $333. That’s a 20.1% return on risk in just over a week.
The 2.0 version of this would be to incorporate a CSP, along with the spread, if you were long-term bullish on AMD. This would technically be called a Jade Lizard and would increase the total credit received.
For example, if we sold a May 9th $87 Put, we would receive $142 in additional premium. We would receive the maximum profit of $209 if AMD remained between $87 and $106, though we would open the portfolio up to substantial losses if AMD tanked. Check out our previous edition for more on this.
This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.
Throttle Q&A
How do the taxes work on Cash-Secured Puts?
Taxes for selling options can feel confusing, but here’s the big idea:
Premium collected = short-term capital gain.
Assignment = premium adjusts your stock’s cost basis.
Event | Tax Treatment |
|---|---|
Put expires worthless | Report the full premium as a short-term capital gain |
Put closed early for profit | Report the gain as short-term capital gain when you close it |
Put closed early for loss | Report the loss as a short-term capital loss when you close it |
Assigned (Stock Purchased) | Premium received reduces your stock’s cost basis (adjusts purchase price) |
Once the stock is purchased, there are further tax codes that dictate its taxation. Consult a tax professional before making a decision.
Important Tips:
Options are almost always treated as short-term gains, even if you held them longer than a year.
Your holding period for the stock (after assignment) starts the day after you’re assigned.
Recordkeeping matters: Track premiums separately when rolling trades so you don’t double-count gains or losses.
If I sell a cash-secured put and the stock price skyrockets above my strike price, do I lose money?
If the stock price rises significantly above your strike price, you do not lose money—you lose out on money.
There is a big difference. You would still keep the premium received, but you will likely kick yourself over not having bought the stock outright. Your opportunity cost is that you missed out on all of the ‘woulda been’ gains.
If you're comfortable with the idea of not owning the stock, then the trade is a win for you. You could even sell another put at a higher strike to capitalize on the higher stock price.
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Disclaimer
The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.
We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.
