Cash Covered vs Naked Puts

Intro: 00:00
The Wheel Strategy Overview: 0:29
IBM Trade Example: 1:33
Cash Secured Puts vs Naked Puts: 3:40

I want to talk about the difference between Cash Secured Puts and Naked Puts. In a recent CWM I got a comment that said "It is the same" and of course that is NOT the case.

You trade Cash Secured Puts when trading The Wheel Strategy and if you need a refresher on The Wheel Strategy, I have linked the playlist for these videos down below.

What does it mean when you sell a Put Option? It means you have to buy the stock at the strike price you sold it for. You want the stock to stay above the strike price that you chose. In this case, you just keep the premium.

Here is a specific example. 3 days ago I sold 2 of the 115 Puts for IBM that expires today. I receive a premium of $43 per Option, $86 total. This comes to $29 per day.

So if IBM stays above $115 at expiration, the option would expire worthless and I just keep the $89.

However, if IBM is below $115 at expiration, then I have to buy 200 shares of IBM (2 contracts at 100 shares each).

If you only had $5000 in your account, you could still take this trade but you don't have enough money in your account to buy the shares if you get assigned. This means you sold the Naked Puts.

If you don't have enough money in your account, the broker is buying them anyhow for you with a Margin Call

With a Margin Call the broker is in control, but you want to be in control when you are trading The Wheel Strategy.

The Options Wheel Strategy Playlist:
   • The Options Wheel Strategy  

=============================================================================================
✅ First, subscribe to my channel here so you never miss a new video: https://bit.ly/3aLKLDz
📈 Watch My Daily Trading Routine Here (that takes me less than 15 min/day): https://bit.ly/2ICZkgX
📕 Get a FREE Hardback Copy Of My New Book “The Wheel Options Trading Strategy”: https://tinyurl.com/bvxjjz7k
💻 Need a broker? We prefer trading using Tradier! Sign up here: https://bit.ly/3uw3RaG
🌍 Outside of the U.S.? Check out Interactive Brokers' amazing platform: http://rockwelltrading.com/ibkr
☕️ Start your morning just like Markus, with the MorningBrew Newsletter: https://bit.ly/32Xs6Uu
================================================================================
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with Rockwell Trading Services, LLC whereby tastyworks pays compensation to Rockwell Trading Services, LLC to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Rockwell Trading Services, LLC by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Rockwell Trading Services, LLC or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Rockwell Trading Services, LLC or this website. Rockwell Trading Services, LLC is independent and is not an affiliate of tastyworks.