SPY cash-secured puts
A guide to selling cash-secured puts on SPDR S&P 500 ETF Trust (SPY), with a calculator set up for it. Enter your own numbers: this page does not show live prices.
What happens at expiration
What SPY is
SPY is an exchange-traded fund that tracks the S&P 500 index of large US companies.
How a cash-secured put works on SPY
You sell one put option on SPY and set aside enough cash to buy 100 shares at the strike price. The buyer pays you a premium today. You keep that premium whatever happens.
If SPY ends below the strike price at expiration, you buy 100 shares at the strike. If it ends above, the put expires worthless and you keep the premium. You are paid to wait while taking on the obligation to buy.
A cash-secured put only fits if you would genuinely want to own 100 shares of SPY at the strike. Assignment gives you broad market exposure rather than one company's risk, but the position can still be down when you receive it.
What to watch with SPY
- Volatility
- SPY is spread across hundreds of companies, so it moves with the broad market rather than on one company's news. Premiums are usually smaller than on a single volatile stock. It can still fall sharply when the whole market sells off.
- Events
- SPY has no earnings report of its own. Central bank decisions, economic data releases and earnings season for its member companies move it.
- Dividends
- SPY pays a quarterly dividend funded by the dividends of the companies it holds. Check the ex-dividend date before selling a call. A call that is in the money near that date can be exercised early by a buyer who wants the dividend.
- Liquidity
- SPY has some of the most actively traded options anywhere, with many strikes and expirations as often as every trading day. Spreads are usually tight but always check the bid and ask on the exact contract you plan to use.
Choosing a strike and expiration
A strike close to the share price pays a larger premium but is more likely to leave you buying the shares. A strike farther below pays less but gives the fund more room to fall before you are assigned.
Shorter expirations bring the premium in sooner and let you reset the trade more often. Longer ones pay more in total but keep your cash committed for longer. Use the calculator above to compare the return on capital and breakeven of a few strikes side by side.
Assignment and tax-lot considerations
If your put is assigned, you buy 100 shares of SPY at the strike. The premium you collected lowers your cost per share to the strike minus the premium. If the put expires unused, the premium is generally a taxable gain.
Your broker holds the cash you set aside while the put is open, so you cannot use it for anything else. Tax treatment depends on your situation, so check it with a tax professional before you trade.
This page is for education only and is not financial or tax advice.
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Plain-English terms
- Option contract
- An agreement that covers 100 shares of a stock.
- Strike price
- The price written into the contract. It is the price shares change hands at if the option is exercised.
- Premium
- The money the option seller collects up front. You keep it no matter what happens next.
- Days to expiration (DTE)
- How many calendar days remain before the contract ends.
- Assignment
- When the buyer exercises the option and you must carry out your side of the deal: buy shares. Most exercise happens at expiration, but the buyer can also exercise early.
- Breakeven
- The share price at expiration where the position neither makes nor loses money.
- Annualized return
- A single period's return scaled up to one year. It assumes you could repeat the same trade all year, which is not guaranteed.
- Covered
- You own the 100 shares the call is written against.
- Cash-secured
- You hold enough cash to buy 100 shares at the strike if assigned.