And what I want to talk about right
now is the difference between cash
secured puts and naked
puts. If you have been following
Сoffee with Markus, then you know
that recently there was a comment
from somebody who said,
"It is the same." And of course,
that is not the case.
So in this video, I'll
show you the differences of cash
secured versus naked puts
and also explain why I highly
recommend that you trade cash
secured puts when trading
the Wheel strategy.
So the Wheel strategy is a strategy
with a very high winning
percentage. See, in my previous
video I explained what
high winning percentage while I've
been trading this strategy for the
past three months publicly here
on YouTube, and I haven't
had a single losing trade
yet. Now, today, I don't want to
talk about the strategy here because
I want to talk about the differences
between cash secured and naked puts.
But if you would like to see the
strategy in detail, just watch
my previous video, I'll link to
it in the description.
Anyhow, so as you can see,
part of this strategy here is
an overview of the strategy,
part of it is that
you sell a put option.
So when you sell a put option, it
means that you have to buy
the stock at the strike
price that you sold it for.
So this is very important and you
have to do it.
So therefore, obviously
what you want is that the stock
stays above the
strike price that you chose.
Because in this case,
you just keep the premium.
Now, let me give you a very,
very specific example here.
So a few days ago,
I sold the 115
put on IBM that expires today.
So as you can see, I did this
three days ago and I received
a premium of
$43 per option that I traded.
Now, I traded two options,
I traded two contracts.
So this means that I received
$86 in premium.
And if you divide this by
three days, so this means that we
are looking at approximately
$29 per day in
premium, which is what I'm looking
for. I mean, this is how I have
achieved the results.
The very systematic results here
of
22.7% over the last three months,
which would, if I can keep it up,
would translate into
19.8% per year, anyhow.
So thus far, what
does it have to do with cash secured
or naked puts here?
Again, in this example, as long as
IBM stays above 115
until expiration, which is
in 20 minutes from
now. So it has to stay above 115
over the next 20 minutes.
So in this case, I
would just keep the
$86 in premium and the option
expires worthless.
However, if IBM
would be below 115
at expiration, then I have
to buy 100 shares
of IBM at a price
of $115.
So in my case, since
I have sold two options,
I would have to buy 200 shares
of IBM at
$115. So this means that I
would have to bring $23,000
to the table.
But here's the deal.
In order to sell these
puts, my broker
only required around
$4,400. Let's take a look at this.
See IBM here, it says capital
required
$4,453. That's only 20%
of the money that I actually need to
buy the shares. So now,
now let's talk about the difference
between cash secured puts
and nakad puts. Is this making sense
thus far? If it is, do me a favor
and click on like really quick,
because this way I know that
I'm not going too fast.
So cash secured puts means
that you have
$23,000 in your account
to cover for
the stocks, if you are getting
assigned, right?
So if you only had
$5,000 in your account, you
could still place the trade because
as you can see, the broker only
required $4,453.
But you wouldn't
have enough money to actually
buy the shares if
you got assigned.
So this means
that you sold the naked puts.
You just don't have enough
money. You just had enough money for
the broker, what he required
to sell it. So why would
the broker let me sell
the puts
for only $4,400, but then in
fact, I need
$23,000 to buy the shares if I get
assigned?
Well, here is why the broker does
it. He does it for two reasons.
Reason number one, most
options expire worthless.
And reason number two, even if they
don't expire worthless
most traders buy the
option back, so they close it before
they expire and the broker knows
that. That's why he's only
requesting a fifth of
the buying power that you need
for buying the shares.
And that's all good as
long as you close your position
before expiration.
However, when trading the Wheel,
you actually want
to get assigned.
It is part of the strategy.
You see, we not only sell a put
option, if we do get
assigned we will sell calls
and get the premium, part of the
strategy. Again, if you would like
to have more information on the
strategy I'll link to it in the
description here.
So the question now is what
happens if you don't
have enough money and
you're getting assigned?
Well, let's say you have
$5,000 in your account and you
entered this trade, and now
IBM is below 115
at expiration and you have
to buy 200 shares at
$115. But you don't have
the money.
So what happens?
Well, now your broker
is buying them
anyhow for you
and you get a
so-called margin
call. What does it mean?
Well, a margin call basically means
the broker asks you
to wire the remaining
$19,000 that you need for this into
the account.
And he wants to have this pretty
much today.
Now, what happens if you don't have
the money? So if you if you don't do
this, well, the broker will
sell the shares and he
sells them the next day at whatever
price he can get.
So this means that you lose
all control over this trade.
Your broker is now in control
and that's not good.
You see, when trading the Wheel
strategy, you want to remain in
control because after we get
assigned the shares, let me just
show you the strategy again.
It's part of the strategy after you
get assigned shares we want to sell
calls against it and collect even
more premium.
And that's why I highly
recommend that you trade cash
secured puts so that you
have enough money in the account in
case you get assigned.
Because this way you
have full control over your shares
and you can actually make money
with them.
Anyhow, is this helpful?
Because now you know the difference
between cash secured puts and
naked puts and you know when
to use what.
Is this helpful at all?
Now, if you enjoyed this video do
me a favor, click on like so that
more people will see this video.
And if you want to see more videos
like this, click on subscribe
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way you get notified whenever I
release a new video. And I will
release two more videos regarding
the Wheel strategy.
One of them is what happens
when you get assigned, because this
is a key question from many
viewers here, might be a question of
you that you say, "OK, what happens
if I get assigned IBM shares?" And
number two, I want to show you how
exactly you place
the trade, right?
How you open the trade and how you
close it. So I have two more
exciting videos coming for you, make
sure that you subscribe.
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and I will see you in the next
video.