I was looking at the January 20, 2023 cash secured puts on Amazon just for fun. If I was confident Amazon was going to be trading over 4000 a share by that date I could sell the put for roughly $110,000.00 in premium. I'm not taking that bet but its crazy to look at some of these.
Nitro, do you secure the $400,000 cash for the put, in your brokerage account?
Does the $400,000 earn any interest over the two years, in this case?
Thanks.
The $400,000.00 is in the brokerage account and would secure assignment. If you sold the put it would reduce your buying power until you close it or it expires. I don't think the cash earns much in interest but I would treat the premium as the interest on the cash so it would earn roughly 9% a year if I spread the premium out over 3 years and the option expired worthless. However I think it would be rare for someone to hold that type of option until expiration.Originally Posted by Charles Prestridge
So who and why do you buy or sell something like that. I see that even the 5000 has a little open interest. Tying up $400K to make $100K with the added risk that you may have to buy the Stock at 4000. There are calls in open interest at the same strike. Must be some kind of spread strategy that works as a hedge for the next few years. Maybe selling butterfly spreads or an iron condor.
Most of the people selling the leaps are never going to hold them until expiration. Most likely they will hold them a few months and hopefully close it out for a profit. I haven't done the math but if you sell out of the money puts each month you could probably make about $1,500.00 a month with less risk. I have been doing that with google the last few months. I sold a put at at the 1600 strike which expires December 18. Based on the current run up it should expire worthless. The extra income is certainly nice on the cash sitting there. I can't really find much to buy with the current market prices.
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