Cash-secured put versus buying the stock outright

Selling a cash-secured put beats buying the shares in every outcome below a crossover price, by a fixed amount, and loses to it above that price by an amount that grows without limit. On a $63.20 stock with the $60 put sold for $1.05, the crossover is $64.25. Buying wins above it. The put wins everywhere else.

This comparison usually gets argued in the abstract. It does not need to be. There is a crossover price, you can compute it before you trade, and everything else follows from which side of it you think the stock finishes on.

The two paths

NKE at $63.20, 35 days to the expiry in question.

• Path A: buy 100 shares. $6,320 out the door.
• Path B: sell the $60 put for $1.05. $105 in, $6,000 of cash secured.

Five outcomes, both paths

Look at the last column. Below the strike the advantage stops moving. It sits at $425 whether NKE is at $55 or at $12, because once you are assigned you own the same 100 shares the buyer owns, just acquired $3.20 cheaper with $1.05 of premium already collected.

$3.20 plus $1.05, times 100. That is the $425 and it is fixed the moment you place the trade.

The crossover, and how to compute it

Buying wins above $64.25. Get there by asking where the share gain equals the premium: $63.20 + $1.05 = $64.25.

That is a 1.7 percent move over 35 days. Not a rally. A drift.

Which reframes the entire decision. The put is not a conservative way to be bullish. It is a bet that the stock does not go up much. If you think NKE finishes anywhere above $64.25 you should buy the shares, and every dollar it runs past that widens the gap with nothing to cap it.

The three things the table leaves out

Dividends. NKE pays one. The shareholder collects it and the put seller does not, because the put seller owns no shares. Over one 35-day window that is often a single quarterly payment or none at all, and over a year of rolling puts on a 2 percent yielder it is 2 percent, which is larger than most of the premium edge being argued about.

You might not get the shares. If you were selling the put because you wanted to own NKE, the scenario where it closes at $61 leaves you with $105 and no position, and then you are choosing between chasing it at $61 and selling another put lower. That failure mode has its own page.

Capital is not the same. $6,320 against $6,000, so nearly identical here. On a deeper out-of-the-money strike the put ties up meaningfully less, and on an in-the-money one it ties up more than the shares cost.

So which one

If you want to own the stock and you think it goes up: buy it. The put caps you at a 1.7 percent move and hands you the entire downside anyway.

If you want to own the stock at a lower price and you are content to be paid for waiting: sell the put. You give up the fast rally and you buy $425 of relative advantage in every scenario where you were wrong about direction.

If you do not want to own the stock: do neither. Both paths end in you owning it.

Questions people actually ask

Keep reading

• The payoff, drawn
• When the shares never arrive
• What the waiting pays per year

Do the math on your own trade

• Cash-secured put calculator credit, break-even, return on secured capital, annualized.
• Payoff diagram builder draw the position and see where the line goes flat.
• Break-even calculator the price where the trade stops making money.

Every price in this article is an illustrative worked example, not a quote. Read Cash-secured puts for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.