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Selling a put

What does getting paid to wait mean, and what cash does it tie up?

What does getting paid to wait mean, and what cash does it tie up?

Video coming soon

In this lesson

  1. When you sell a put, you promise to buy 100 shares at the strike. The promise applies if the price falls below the strike. You are paid a premium for it right away.
  2. Rendity shows the cash for your puts as committed. A put can cost you the strike times 100 shares, and you should keep that cash ready. So the dashboard shows the committed amount next to the cash you can really use.
  3. In the worst case you pay the strike, even if the price is far lower. If PayPal fell to $30, you would still pay $52 a share. That is $2,200 above market, with only $160 premium to soften it.
  4. Without a margin account, IBKR may refuse a trade. That happens when the trade would need the committed cash. Rendity shows you the commitment before you try.

The example: open puts and a year of McDonald's

Two puts are open. PayPal at $52 can cost you up to $5,200, and Zoetis at $67.50 up to $6,750. Rendity shows that amount in euros as committed, and next to it the free cash, which is the money you can really use.

In March 2024 you sell a put on McDonald's at $270 for $260. It expires, and you keep the money. At the end of May, after the price has turned up from a low, you sell a put at $255 for $240. On 14 June McDonald's closes at $253.58, below the strike, and you buy 100 shares at $255, which is $25,500.

At the end of June you sell a call on those shares at $270 for $120. It expires. At the start of August, after a high, you sell a call at $265 for $640. On 16 August McDonald's closes at $278.49, above the strike, and your shares are sold at $265, $10 above what you paid. In all, you are paid a premium four times while you wait.

Sample account, not real data, not investment advice.

Where to find it in Rendity

The Dashboard shows the cash cards Cash Balance, Committed to Puts and Free Cash. Each expiry date has its own chip there, with the cash it could cost and the days left. The position chart of a stock shows each put and call on its date.

Included inTree Orchard

Terms from this lesson

Next lesson Expiry, assignment and what happens next

Education only, not investment advice. Tax topics are not tax advice.