The Trade at a Glance
- Underlying Stock: Tempus AI Inc. ($TEM)
- Strategy: Sell 1 Cash-Secured Put
- Expiration: March 21
- Strike Price: $65
- Premium Received: $650
- Margin Requirement: $6,500 (secured cash for 100 shares)
Key Metrics
- Max Profit: $650 (collected upfront).
- Return on Capital: ~10% in ~6 weeks (650/6500).
- Break-Even Price: $58.50 ($65 strike – $6.50 premium).
- Risk: Obligation to buy 100 shares of $TEM at $65 if assigned.
Why This Trade Makes Sense
Income Generation
Selling puts generates instant premium income, resulting in a potential 10% return in under two months, significantly higher than typical savings yields.
Stock Acquisition at a Discount
If assigned, you purchase $TEM at an effective price of $58.50, potentially below its market value, making this ideal for bullish investors.
Defined Risk & Capital Efficiency
A $100K account can efficiently allocate capital for cash-secured puts, maintaining liquidity for other trades.
Risk Management
- Max Loss Scenario: If $TEM drops to zero, potential loss is $6,500 – $650 = $5,850.
- Mitigation Strategies:
- Set a mental stop-loss or adjust position if the stock approaches $65.
- Roll the put to a later expiration for additional credit if needed.
- Only trade if comfortable owning $TEM long-term at $65.
Why $TEM?
Tempus AI is a high-growth AI company, leveraging data-driven healthcare solutions. The stock’s volatility enhances option premiums, making put-selling an attractive strategy. Always analyze earnings, sector trends, and market sentiment before entering trades.
Final Thoughts
Selling cash-secured puts is a disciplined approach to generating income while defining risk. For a $100K account, this $TEM trade balances premium collection with potential stock ownership at a discount.
Ready to Explore Options?
Follow our blog for more strategies, and never risk more than you’re willing to lose. Options involve risks—consult a financial advisor if needed.
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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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