Cash secured puts, buying after the underlying falls

First of all, I have zero knowledge of derivatives, so if the following doesn’t seem coherent, bear with me.

I have seen a video, in which the person who is speaking wants to buy Bankbees, but as it is trading at a higher price, he does not want to buy Bankbees, so he invests in cash secured puts, he shorts. He sells next month naked put option. He sells 1 lot put option.

He does not wait for the Banknifty to come down, and that he does not buy Bankbees until Banknifty falls, and he invests in these puts and makes money through time decay, while waiting for Banknifty to come down.

After his OTM put changes to ITM, he will close the put and buys Bankbees.

He says that this cash secured puts strategy helps with good stocks, or with index, and for investors who want to buy only at a certain price, but can make money with time decay.

So can you members who do this regularly explain the basics of how this works?


@AlgoEye @Jason_Castelino @ronin_sha and everyone else who trades in derivatives.


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Cash secured put is just opposite of covered call.I don’t prefer covered call or cash secured puts as there is no inherent edge in very long term. I back tested these strategies ( without clubbing any other thing-just every month blindly follow covered call or cash secured put) and found the returns are more or less the Risk free returns (fd returns)without adding slippages and other costs. Also, there are n number other risks as well you need to be deep pocketed and have very long patience to perform the starategies each month. Eg. Yes bank , if you had just continued it blindly then you would have lost all as its FNO got banned at some point in time.You won’t have this risk in index though but index are hugely volatile.

These strategies work best when you club them with the view(direction) or fundamentals of business and have at least 1-3 lot equivalent cash with you then you may play around with these. Blindly ,doing and sitting is just a waste of time better put in debt instument

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I think the idea is that, as Bankbees trades at a higher price, and he will buy only when it falls, but will not wait for it to fall, as it may take weeks or even months, so place cash secured puts on Banknifty, and make money with time decay. If it falls, he will buy the ETF, if it does not fall, he will still make the money.

No studying of the fundamentals, nothing more added, I think this was the whole plan. Sounded simple to me, and also sounded like a win-win situation.

Covered call is safe but I don’t think there’s much meat there in the LT. The put might have something if you are doing it with an index.

I did it on Top 6 nifty 50 stocks when I started with derivatives, but not anymore. It was profitable and it helped me understand derivatives better and helped me build some base without much drawdown. I know @Jason_Castelino has done it successfully over a long period.

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Forgot your name while quoting others :grin:

So does the above strategy implemented regularly, both parts, cash secured puts for an instrument trading higher and buying the instrument when it falls?

Yes. I have been doing this for some time now. I started with stocks but then as someone mentioned with stocks like yes bank you can go wrong.

Now I do it only with index. In fact today my 17000pe came ITM and I switched to futures. At the same time I sold 17400call. Also my next limit to add futures is 16500. So I sold 16500put again.
In my opinion, If you are doing this with amount less than 1cr then it’s not really worth. Do not expect a return of 2 percent per day and all. U can expect to make around 25 to 30 percent per annum if you actively managing your positions. Again doing it with one lot will eat away your profit in expenses.


I don’t agree with this statement @AlgoEye.
One can very well manage 12-18% of returns annually by the time decay, and add ~4% of return on the cash secured in bank account. So even after charges, slippage one can manage 15% annual return.
Yes the returns ARE mediocre, but not comparable to risk free return of ~6%.

The real problem is yes, getting stuck in YES bank like stocks- so usually, stocks chosen to deploy such strategy should be of fundamentally strong companies, or one should stick to indices.

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I am taking plan vanila case considering low beta instuments which are good for these strategies .Can you share you backtest results/ instument/strike% etc. I did comprehensive study long back and came to conclusion that there are other easy index investment strategies which are better .You might be doing some adjustments or some other flavours etc. Nifty ATM monthly premium is around 2% only so even it expires at ATM every month then max one can only earn 2% a month other low beta instuments has lower premium then there are other issues.

Also , when i say return i meant return on whole capital not individual trade. eg: if you have 1 cr , return 6 lakh. I don’t think any one can deploy whole capital in these strategies.

So do you trade the strategy that I had mentioned?

So this strategy works consistently with Nifty or Banknifty?

Does the second part of the strategy has a place, buying the underlying instrument, or the strategy has only one part, buying cash secured puts?

That’s all that I have been saying. That’s all that I do. I have told this in multiple posts also. I don’t trade on the basis of technicals and all. Obviously I don’t understand. Lol.

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But do you do the second part, buying the instrument that you are making the cash secured puts for? The person in the video does both.

Arey, That’s the exact meaning of cash secured put. Obviously I do that.

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I did not know that :neutral_face:

So the person in the video did that for Banknifty, cash secured puts for Banknifty, and buying Bankbees. What do you do on, Nifty, Banknifty, individual stocks?

I started with stocks like HUL SBI ITC HDFC Sunpharma TCS HCL Drreddy. All ended up in very good profit but got stuck with drreddy. I still have drreddy in my holdings and now I have been selling 5000calls. I had taken delivery of it at 5000 because my 5000pe came ITM. But if I consider the total premium that I have collected from drreddy is around 800 points in last 2 years. So my net cost is 4200. And that’s the current market price.

Then once stocks went up I felt it’s better to switch to index. So started doing with with banknifty. Came ITM twice. But then since it recovered I do no have any position there.

Wanted to reduce risk further so switched to nifty. Now it’s been almost 1 year. I do this only with nifty. As I mentioned yesterday my 17000pe came ITM and now am long on it. Will close this long position when we go back to 17800 and then sell 17500 put. This is how I keep increasing my levels of strike.

This was posted in July 2021


Don’t get carried away by these. Here are some issues

  1. Most of the people don’t feel like buying when market crash as news media spook everyone
  2. If a rally happens you will just get the premium of PUT which is peanut compared to the buy and hold. You will miss the rally
  3. Everyone is not disciplined. They will just use the cash to do other impulsive strategies.
  4. There are better strategies to make money that this.
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Totally agree. It looks all good when you read about it. You really need very good control over your emotions.

Yes. You have strictly stick to your rules. You have to work like a machine. Trust me it’s not easy.

Yes. Especially stocks. With index it’s not a problem for me because I make equivalent return as much as index gives per month in any way.

Yes. You will feel like you should book loss and wait for lower levels.

Agree. Won’t work for everyone.

Except for the methodology of how it works, and what should I do, psychological things are easy for me.

Have to look at this :thinking:

You mean, work non stop or take decisions like a machine, take mechanical decisions?