The Inverse Relationship Between Stock Price and Put Premium + Sample Trade Video

When selling our cash-secured puts, understanding the correlation between stock price and our put premiums is critical to maximizing the success of our trades. For covered call writing, the relationship is direct … if share price increases, so will the value of our call options by its Delta factor. For puts, the opposite is true … if stock value rises, put value falls, providing us with the opportunity to buy back the put option at a much lower price. This is why when we view a put option chain, the stats have negative Deltas.

What is Delta?

One of the 3 definitions of Delta is the amount an option premium will change for every $1.00 change in the price of an underlying security. If we generate $1.00 per share when selling a cash-secured put and the strike has a Delta of -.50 per share or -50 for the contract, and share price changes by $1.00, then put value is reduced (if stock price rises) or increased (if stock price falls) by $0.50.

Real-life option-chain with Chipotle Mexican Grill, Inc. (NYSE: CMG)

• 9/30/2024: CMG trading at $57.30






• 9/30/2024: The 10/18/2024 $55.0 OTM put shows a bid price of $0.70






• 9/30/2024: The $55.00 put shows a Delta of -0.2709






• For every $1.00 in share price increase, the $0.70 premium will reduce in value by $0.27






• If the share price rises enough, we can buy back the option at an extremely reduced price and sell a higher put strike to generate additional option income (rolling-up)

CMG initial put calculations using the BCI Trade Management Calculator (TMC)

• Red circle: If taken through expiration, this is a 19-day trade






• Yellow cell: The breakeven price point is $54.30






• Brown cells: The initial time value profit is 1.29%, 24.76% annualized






• Purple cell: If the put is exercised and shares are put to us, we buy those shares at a 5.24% discount from the price at trade entry (the breakeven price of $54.30-yellow cell)

What are the 20%/10% guidelines for cash-secured puts?

These are exit strategy guidelines which assist us in determining when to buy back our cash-secured puts when the share price accelerates significantly. In the first half of a monthly contract, we enter a buy-to-close (BTC), good-until-cancelled (GTC) limit order of $0.14 (20% of $0.70) after selling the CMG cash-secured put. In the last 2 weeks of a monthly contract, we change the limit order to $0.07, 10% of $0.70. This is also a BTC/GTC limit order. If we can retain 80% – 90% of our original option premium and generate more than $014 or $0.07 by rolling up to a higher put strike, we will have generated an additional income stream or perhaps more.

Discussion

When selling cash-secured puts, we can generate additional income streams by understanding the inverse relationship between share price and put value. Using the BCI 20%/10% guidelines will partially automate the exit strategy process.

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The purpose of this book is to give the reader the tools to master a conservative stock and option strategy with the goals of generating monthly cash flow and focusing on capital preservation. Selling cash-secured puts is a low-risk strategy that leverages high-quality stocks and exchange-traded funds to accomplish these objectives.

This book will present basic option principles that apply to this system and will walk you through the process of stock and option selection. Additionally, calculating profits and position management will also be critical topics addressed. In other words, every aspect of this strategy will be discussed including the necessary steps to take before, during and after a trade is executed. Examples of real-life trade executions will be shown in conjunction with illustrative charts and graphs, and the rationale for each step behind the trade will be explained using easy-to-understand terminology.

Click here for more information and purchase link.

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Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to publish several of these testimonials in our blog articles. We will never use a last name unless given permission:

 

New sample trade video

 

 

 

 

 

Upcoming events

1 Long Island Stock Investor Group Part II

March 13, 2025

7:30 – 9:00 ET

Private investment club

Cash-Secured Puts: 2 Outcomes

2. Money Masters Symposium Dallas 2025

Saturday April 5, 2025

Hilton DFW Lakes

Saturday April 5, 2025

Hilton DFW Lakes

2 events:

45-minute workshop

Selling Cash-Secured Puts to Buy a Stock at a Discount or to Enter a Covered Call Trade

 

Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash-flow. This presentation will detail how to craft the strategy to buy a stock at a discounted price or to initiate a covered call trade. Topics included in the webinar include:

 

• Option basics
• The 3-required skills
• Practical applications

  • Traditional put-selling
  • PCP (Put-Call-Put or wheel) Strategy (adds covered call writing)
  • Buy a stock at a discount instead of setting a limit order

Real-life examples along with rules, guidelines and calculations are included in this presentation.

 

All Stars of Options panel discussion

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3. Investment Masters Symposium Miami 2025

Thursday May 15, 2025

Thursday, May 15, 2025, at 10:30 am – 12:30 pm EST
Using Both Covered Call Writing & Selling Cash-Secured Puts in a Multi-Tiered Option-Selling Strategy

(The Put-Call-Put (PCP or “Wheel) Strategy)

Thursday, May 15, 2025, at 3:40 pm – 4:25 pm EST
Using Cryptocurrency in Our Low-Risk Option Portfolios

Thursday, May 15, 2025, at 5:55 pm – 6:25 pm EST
All-Stars of Options Panel

Registration details to follow.

4. BCI Educational Webinar Series

Using Cryptocurrency in Our Low-Risk Option Portfolios

June 19, 2025

Registration details to follow.

5. Orlando Money Show

Orlando Resort @ ChampionsGate

October 16 – 18, 2025

Details and registration link to follow.