The Trade at a Glance
- Underlying Stock: NuScale Power Corp. ($SMR)
- Strategy: Sell 1 Cash-Secured Put
- Expiration: February 14
- Strike Price: $25
- Premium Received: $83
- Margin Requirement: $2,500 (secured cash for 100 shares)
Key Metrics
- Max Profit: $83 (collected upfront).
- Return on Capital: 3.32% in a few weeks ($83/$2,500).
- Break-Even Price: $24.17 ($25 strike – $0.83 premium).
- Risk: Obligation to buy 100 shares of $SMR at $25 if assigned.
Why This Trade Makes Sense
Income Generation
Selling puts generates instant premium income, offering a 3.32% return in just a few weeks.
Stock Acquisition at a Discount
If assigned, you buy $SMR at an effective price of $24.17, a discount from the strike price.
Capital Efficiency
A $100K account can efficiently allocate capital for put-selling while preserving liquidity.
Risk Management
- Max Loss Scenario: If $SMR drops to zero, the potential loss is $2,500 – $83 = $2,417.
- Mitigation Strategies:
- Roll or close the put when it makes sense to lock in profits or extend the trade for additional credit.
- Only trade if comfortable owning $SMR long-term.
Why $SMR?
NuScale Power is a leader in modular nuclear reactors, a high-growth sector. Selling puts on companies with strong growth potential allows traders to capitalize on market volatility while defining risk. Always research earnings, sector trends, and market conditions before trading.
Final Thoughts
Selling cash-secured puts is a strategic approach to generating income while defining risk. For a $100K account, this $SMR trade balances risk and reward, leveraging market movement for premium collection.
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Disclaimer: This post is for educational purposes only. Past performance isn’t indicative of future results. Options trading carries significant risk.
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