How to Sell Cash Secured Puts on Robinhood
If you are looking for a way to generate income from your cash and potentially buy stocks at a discount, you might want to consider selling cash secured puts on Robinhood.
In this article, we will explain what a cash secured put is, how to sell puts on Robinhood, and the risks and benefits of this strategy.
What is a Cash Secured Put?
A cash secured put (CSP) is when you sell to open a put option. Doing this is like getting paid cash to promise to buy 100 shares of stock at the strike price you select.
A put option gives the buyer the right, but not the obligation, to sell 100 shares of the underlying stock or ETF at the strike price by the option’s expiration date. As the seller of the put option, you collect a premium upfront and you are obligated to buy 100 shares of the underlying stock or ETF at the strike price if the buyer exercises their option.
A CSP is different from a naked put, which is when you sell a put option without having enough cash to buy 100 shares of the underlying stock or ETF at the strike price.
A naked put is a risky strategy that can expose you to unlimited losses if the underlying stock or ETF drops significantly. Robinhood does not allow you to sell naked puts, so you can only sell cash secured puts on this platform.
Generally, people will sell cash secured puts until they are assigned, and then start selling covered calls, which is known as the wheel strategy.
How to Sell Puts on Robinhood
Selling puts on Robinhood is easy and straightforward. Here are the steps you need to follow:
1- Pull up the Stock You Want to Sell a Cash Secured Put on
On the Robinhood app or website, search for the ticker symbol of the stock or ETF you want to sell a CSP on. For example, let’s say you want to sell a CSP on Apple (AAPL). You would type AAPL in the search bar and tap on it.
2- Click Trade → Trade Options
On the stock or ETF page, tap on the Trade button at the bottom right corner and then tap on Trade Options.
3- Select the Expiration Date
On the options page, you will see a list of expiration dates for different contracts. You can scroll left or right to see more dates. Tap on the date you want to sell your CSP on.
4- Tap Sell & Put
On the next page, you will see two tabs: Call and Put. Tap on Put to see the put options available for your selected expiration date. Then, tap on Sell to switch from buying to selling mode.
5- Select the Strike Price
On the same page, you will see a list of strike prices for different put options. You can scroll up or down to see more prices. Tap on the strike price you want to sell your CSP at. For example, let’s say you want to sell a CSP with a strike price of $140. You would tap on $140.
6- Enter the # of Contracts & Review the Order
On the final page, you will see the details of your order, such as the premium you will receive, the break-even price, and the maximum loss. You can also enter the number of contracts you want to sell. Each contract represents 100 shares of the underlying stock or ETF.
Before you submit your order, you must have have enough cash in your account to cover your maximum loss. This is calculated by multiplying the strike price by 100 and subtracting the premium received.
For example, if you sell one contract of AAPL $140 put for $2 per share, your maximum loss is $13,800 ($140 x 100 - $200).
To submit your order, tap on Review at the bottom of the page and then swipe up to confirm.
What is the downside of selling a put?
Selling a put has some advantages and disadvantages that you should be aware of before using this strategy. Here are some of them:
Advantages
You can generate income from your cash by collecting premiums upfront.
You can potentially buy stocks at a discount if they drop below your strike price by expiration.
You can benefit from time decay and implied volatility drop as they lower the value of your option.
You have a higher probability of profit than buying a call or buying shares outright.
Disadvantages
You have limited upside potential as your maximum profit is capped at the premium received.
You must buy the stock at the strike price, even if it drops hard to zero.
You tie up your cash as collateral until the option expires or is closed.
You may incur commissions and slippage that reduce your net profit.
How to Learn More About Options Trading
If you are interested in learning more about trading options, you might want to join the HaiKhuu Trading community. HaiKhuu is a platform that offers plenty of free resources to help you along your journey of becoming a successful options trader. Some of the benefits of joining HaiKhuu are:
You can access daily morning reports that provide market updates, analysis, and trade ideas. Just enter your email at the bottom of this article!
You can join live trading calls on Discord where you can watch experienced traders execute their strategies and share their insights.
You can interact with a community of thousands of like-minded traders who are willing to share their knowledge, tips, and feedback.
Additionally, if you are looking for a new broker, consider our article about tastytrade vs. Robinhood as part of your research.
FAQ
How much cash do you need for a cash secured put?
You need enough cash to buy 100 shares at the strike price for each contract you sell. This is calculated by multiplying the strike price by 100. For example, if you sell a CSP with a strike price of $50, you need $5,000 in cash for each contract.
Is a cash-secured put bullish?
Yes, a CSP is a bullish strategy. You want the underlying stock or ETF to stay above your strike price by expiration so that your option expires worthless and you keep the premium. However, you should also be comfortable with buying the stock or ETF at the strike price if it drops below it by expiration. If you get assigned, you can sell covered calls.
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