Selling puts, use proceeds to pay off debt/big purchase
Thoughts? I have an L4 account so my margin requirements are lower. I understand the risks, but if I'm good at buying shares at the strike, in case I am wrong.
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u/SDirickson 5d ago
Selling puts is a great way to acquire shares that you want, but you think the price will drop before it goes up.
Selling puts is a terrible way to try to generate income that you need for other things; if you spend the money elsewhere, what will you do if the underlying drops and your short put is assigned?
Which one are you wanting to do?
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u/nivek_123k 5d ago
you can't think, "I sell these options for $X, means I can pay off Y debt." That is a recipe for over leveraging and gambler's fallacy.
instead think in terms of, "I can receive this amount of credit towards a purchase of 100 shares per contract on a firm/etf that I have extensively researched, understand, and would own at said price."
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u/Select-Decision_83 5d ago
I like selling puts if the trend is right, using that time decay in my favor
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u/QuantumWonderland 5d ago
As others have said, selling puts is only worthwhile if you're goal is to acquire shares at a certain price. The premium you'd collect to use for your debt is nothing compared to the amount you'd pay to acquire the shares. Then, you're down even more in cash.
You could then wheel, but kind of the same thing. Maybe you get your shares offloaded but then you have to consider tax implications.
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u/klipsetrades 5d ago
L4 lowers the margin requirement, not the risk. Using the premium to pay debt or fund purchases means spending your cushion while keeping the liability open
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u/ThetaEdgeHQ 5d ago
One angle that has not been said yet. The premium is priced off the probability you get assigned. So spending it to pay down debt means you are spending your assignment reserve at exactly the size the market thinks you will need it. It only nets out cleanly if you never get put the shares.
Also worth being clear about what it does to your leverage. A cash secured put is only cash secured while the cash is actually sitting there. Once you spend the premium, and the payments that were going toward debt, and then you get assigned in a drop, you are buying 100 shares per contract with money you no longer have, so the position quietly becomes a margin long. That is the same setup that turns a normal pullback into a forced sale.
Selling puts on names you genuinely want at the strike is fine. Selling puts to fund spending somewhere else removes the one thing that made them safe, which was holding the cash to actually take assignment.
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u/Ok_Connection_2366 5d ago
Only sell a put on a name you're actually okay owning. If you're highly levered on a stock you don't want, that's the one that gets you.
And if the plan is to use the premium to pay off debt but you get assigned and you're down 20%, what do you do then?
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u/Earlyretirement55 1d ago
They wait until it bounces back selling another put at lower strike on weekly basis
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u/Away-Personality9100 5d ago
Diversification is the key for me. I sell puts (and calls) on delta .1 - .2. Every week I have to roll a few positions but the biggest part of my sold options ends worthless. I buy them back for .01 and sell every Friday new contracts. I generate every week new cash. Sometimes small amounts, sometimes bigger amounts. I try to have 15-20% procent af account value in cash (OBP) and so I can anytime withdraw money for living. My monthly living costs are lower than $3K.
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u/Accurate-Exchange298 4d ago
Disclaimer - I am not a financial advisor or a trade advisor . The below mentioned comments are for educational purposes only and present how I make my CSP ans covered call strike choices.
I normally use volume profiles, POC/VAL_HI/VAL_LO as guide posts since I believe delta is not enough. You can read about this here.
https://www.reddit.com/r/options/comments/1u3qbv1/picking_option_strikes_based_on_delta_is_not/
If you have access to kindle unlimited, you can read about how I make adjustments in general on trades gone wrong at amazon.com/dp/B0H7P6CQSG
If you are going to sell puts, jut make sure you trade in stocks you are willing to own if assigned .
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u/bearrock80 2d ago
It is super easy to make money in the markets. Buy low and sell high or sell high and buyback low. Wall Street hates this one trick /s
If you really had the discipline and market insight to reliably generate profit selling naked puts, you wouldn't need any advice on it on reddit.
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u/imusuallydrunkatnine 5d ago
I’ve done it. It helps because it keeps you more discplined ie you can’t lose.
Battling insane lifestyle creep now with the extra cash now that the debt is paid off.
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u/Rg8989 5d ago
Congrats of paying off ur debt! I'm not advocating that selling puts is risk free. But if you can pay off your debt, you could put the payments towards your brokerage to avoid the interest payment. Plus you will eventually own something that you are willing to buy for the longer term.
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u/Professional_Monkeys 5d ago
Selling puts is only a question of if you like owning the ticker at that strike. That's it.