1. Covered Calls and Cash-secured Puts
Options
Covered Calls and Cash-secured Puts

2. What is an option?
It is the ability, but not the obligation, to buy or sell a security at a given price (strike price) within a predetermined time period.
There are two sides to options trade contracts
-Buying of contracts
-Selling of contracts (writing)
1 contract = 100 shares of underlying security
Monthly options expire every 3rd Friday of the month

3. Options Strategy Selling Covered Calls
-You receive money today (premium) in exchange for your stock’s potential future upside
-The money is yours, regardless if the option is exercised on or before the expiration date
-The position is “covered” because you own at least 100 shares of the underlying security

4. Covered Call Example DHR $80 on June 25th August 18th option chain
Earnings release date: August 30th
Strike Price
Premium per 1 contract = 100 shares
$85 $2
$90 $1

5. Covered Call Outcomes The stock price goes down…..
The stock price goes up, but doesn’t reach strike price….
The stock price exceeds the strike price….

6. Covered Call Illustration
6/25
Strike Price
8/18
Potential Opportunity
Forfeited Opportunity
$80
$85
$90

7. Cash-secured Put Selling Cash-secured Puts
-You receive money today (premium) in exchange for downside risk.
-The money is yours, regardless if the option is exercised
-The position is “cash-secured” because the money must be in reserves within your account

8. Cash-secured Put Example
DHR $80 on June 25th
August 18th option chain
Earnings release date: August 30th
Strike Price
Premium per 1 contract = 100 shares
$75 $2
$70 $1

9. Cash-secured Put Outcomes
The stock price goes down…..
The stock price goes down, but doesn’t reach strike price….
The stock price exceeds the strike price….

10. Cash-secured Put Illustration
8/18
Strike Price
6/25
$80
$70
Overpayment
$75
Potential “savings”

11. Conclusion
Options can be used to provide income to your existing portfolio or reduce cost basis while waiting for anticipated price movements.
Cash-secured Puts can be used similar to limit orders to secure stocks at a lower price basis.
Covered Call Video