The Trade at a Glance
- Underlying Stock: SMR
- Strategy: Roll 1 Cash-Secured Put
- Expiration: March 21
- Strike Price: $24.5
- Premium Received: $10 (additional credit from the roll)
- Margin Requirement: $2,450 (secured cash for 100 shares)
Key Metrics
- Max Profit: $10 (collected upfront)
- Break-Even Price: Adjusted based on previous premium collected
- Risk: Obligation to buy 100 shares of $SMR at $24.5 if assigned
Why This Trade Makes Sense
Income Generation
Rolling the put allows for additional premium collection, incrementally increasing potential profits while maintaining the trade.
Stock Acquisition at a Discount
If assigned, you buy $SMR at an effective lower price, considering all collected premiums.
Capital Efficiency
A $100K account can leverage cash-secured puts to maximize returns over time while keeping capital available for new opportunities.
Risk Management
- Max Loss Scenario: If $SMR drops to zero, the potential loss is $2,450 minus total premiums received.
- Mitigation Strategies:
- Monitor price action and consider rolling again if it makes sense to extend duration and collect more premium.
- Only trade if you’re comfortable owning $SMR long-term at $24.5.
Why $SMR?
SMR remains an intriguing trade opportunity with its sector potential and price movements. Selling puts on such stocks provides a balance of premium income and potential long-term stock ownership at favorable prices.
Final Thoughts
Rolling cash-secured puts is a disciplined strategy to enhance income generation while managing risk. This $SMR trade keeps premium collection steady, maintaining flexibility within a $100K options portfolio.
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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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