NEW! How To Buy a Cash Secured Put on Robinhood | Passive Income With Cash Secured Puts

How to Create a Cash-Secured Put in Robinhood

In this guide, we’ll walk you through the steps to create a cash-secured put using Robinhood, making the process simple and straightforward.

Step 1: Select Your Stock

Start by navigating to the search bar within the Robinhood app. Type in the stock you are interested in; for this example, we’ll use Microsoft (MSFT).

Step 2: Initiate the Trade

Once you have selected Microsoft, scroll down to find the "Trade" button. Click on it and then select "Trade Options."

Step 3: Choose Cash-Secured Put

Once in the options trading section, you will see a variety of options available. Scroll down and select "Cash-Secured Put."

Step 4: Set the Expiration Date

At the top of the screen, you will notice an option to select your expiration date. I recommend selecting a date about a month out for the most flexibility. For this example, we will choose May 2nd.

Step 5: Select Your Strike Price

In the middle of the screen, you will find the current share price (e.g., $374.50). Next, look for the green numbers on the right side, which represent various strike prices. Click on the one that suits your strategy.

Understanding Credit Values

It’s important to note that the credits displayed are multiplied by 100. For instance, if you select a credit of $10.35, that equates to $1,035.

Choose a Comfortable Strike Price

Select a strike price that you are comfortable with. For example, if you doubt that Microsoft’s stock will drop from $374 to $315, consider the options available to you. While clicking on a lower strike price might earn you a premium (e.g., $90), you must remember that it requires $31,000 in collateral, which might not make sense for a small return.

Evaluate Your Risk

If you end up losing the bet, you are obligated to purchase 100 shares of the stock at the selected strike price. This is why it’s essential to choose companies you believe in, like Microsoft. A strong company is likely to see its stock price recover, making this a less risky scenario.

Win-Win Scenario

With a cash-secured put, there are two potential outcomes: either you receive the premium upfront and keep it, or you’re required to purchase shares of a quality company. This creates a win-win situation.

Step 6: Review Your Trade

Once you have selected your strike price and entered the details, hit “Review.” Ensure you have sufficient buying power or funds in your account for the transaction. If your buying power is insufficient, deposit the necessary funds to proceed.

Step 7: Place Your Order

You will be prompted to enter a limit price for your transaction. Enter your chosen amount—say, $10.35—and hit review one last time.

Conclusion

Once you have reviewed everything and are satisfied, go ahead and place your trade. If you have any questions or need further assistance, feel free to reach out. Thank you for taking the time to learn about cash-secured puts in Robinhood!