The Trade at a Glance
- Underlying Stock: Robinhood Markets Inc. ($HOOD)
- Strategy: Sell 1 Cash-Secured Put
- Expiration: March 14
- Strike Price: $43
- Premium Received: $216
- Margin Requirement: $4,300 (secured cash for 100 shares)
Key Metrics
- Max Profit: $216 (collected upfront)
- Return on Capital: 5.02% in a few weeks ($216/$4,300)
- Break-Even Price: $40.84 ($43 strike – $2.16 premium)
- Risk: Obligation to buy 100 shares of $HOOD at $43 if assigned
Why This Trade Makes Sense
Income Generation
Selling puts generates instant premium income, providing a 5.02% return in a short period—a solid return compared to traditional investments.
Stock Acquisition at a Discount
If assigned, you buy $HOOD at an effective price of $40.84, below the strike price.
Capital Efficiency
A $100K account can allocate capital for this put sale while keeping liquidity for other trades.
Risk Management
- Max Loss Scenario: If $HOOD falls to zero, the potential loss is $4,300 – $216 = $4,084.
- Mitigation Strategies:
- Monitor price action and consider rolling or closing the put if it makes sense to secure profits or adjust risk.
- Only trade if comfortable owning $HOOD long-term at $43.
Why $HOOD?
Robinhood has experienced strong growth in retail trading and fintech, making it a high-volatility stock that provides attractive premium opportunities. Selling puts on such stocks allows traders to capitalize on market swings while managing risk.
Final Thoughts
Selling cash-secured puts is a disciplined way to earn income while defining risk. This $HOOD 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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