Cash-secured puts

Same idea as covered call ranking, applied to puts.

Step 1: Compute two returns

Note: RIA is a bit conceptually weird — you don’t literally “profit” at assignment; you’re now long stock. It represents the “yield” you got in exchange for the assignment discount.

Step 2: Rank candidates

Three TCS put candidates (TCS at 3,800):

Strike	OTM%	Premium	RIU (mo)	Assignment Prob
3,750 (1.3% OTM)	1.3%	₹85	1.30%	~40%
3,700 (2.6% OTM)	2.6%	₹50	0.77%	~30%
3,650 (3.9% OTM)	3.9%	₹35	0.55%	~20%
3,600 (5.3% OTM)	5.3%	₹22	0.34%	~12%

An expert principle:

• If you WANT the stock: pick higher assignment probability (3,750 strike) — you get paid to buy it soon
• If you’re INDIFFERENT / mostly want income: pick lower assignment probability (3,600 strike) — smaller premium, more likely to keep repeating

The 3,700 strike (middle) is the balanced pick most retail traders converge on.

Step 3: Apply the “would I own this stock?” filter

Before selling ANY cash-secured put, ask:

• Would I hold this stock for 6-12 months if assigned?
• Is my collateral fully committed to this position (no need elsewhere)?
• Is the strike price genuinely attractive as an entry price?

If any answer is no, don’t sell the put. Selling puts on stocks you don’t want is a recipe for getting stuck holding losers.

Setup requirements

• Capital: ₹5-10 lakhs minimum (need collateral for at least 1 lot)
• Watchlist: 3-5 stocks you’d genuinely own long-term
• Time: 15-30 min per month to review and roll

Stock selection criteria

Best candidates for the Wheel:

• Large-cap — liquid options, tight spreads
• Dividend-paying — extra yield on top
• Moderate volatility (15-25% annualized) — enough premium
• Range-bound or slow trend — assignment less catastrophic
• You’d hold long-term — assignment is fine, not a disaster

Indian best-of-breed:

• Reliance (lot 250) — most liquid
• TCS (lot 175) — tight spreads
• HDFC Bank (lot 550) — banking beta
• Infosys (lot 400) — IT sector
• ITC (lot 1600) — dividend heavy
• L&T (lot 175) — capital goods

The monthly rhythm

Day 1 (day after expiry):

• Review watchlist
• Sell puts on 1-3 stocks at 3-5% OTM, monthly cycle
• Pick strikes you’d genuinely be happy to buy at

Weeks 2-3:

• Monitor but don’t overtrade
• If a put goes deep ITM and you don’t want assignment: roll down and out for credit

Day 21-22:

• If put is very cheap (< 25% of premium collected): buy back, redeploy
• If put is threatening but you’re OK with assignment: hold to expiry

Expiry day:

• OTM puts expire worthless → collect premium → restart
• ITM puts assigned → prepare for shares
• The next Monday: if assigned, sell covered calls on the new shares

Assigned — now what?

You now own 175 shares of TCS at ₹3,650 effective. TCS is at ₹3,620.

Options:

1. Sell covered call at 3,700-3,750 strike, next month. Continue Wheel cycle.
2. Hold and wait for TCS to recover before writing calls (if premium is too low right now).
3. Sell if the thesis broke — cash out, redeploy elsewhere.

Realistic Wheel returns

Long-run average across cycles: ~10-15% CAGR on the working capital. Not a get-rich strategy but a reliable one for patient investors.

When the Wheel breaks

If a stock drops 30-40% while you’re wheeling it:

• You’re stuck with shares deeply underwater
• Covered call premium is meager (deep OTM strikes)
• Original thesis may be broken

Rule: if a wheeled stock drops 25%+ from your first assignment price, exit the position entirely and redeploy capital. Don’t keep writing worthless calls hoping for recovery.

Common Wheel mistakes

1. Wheeling stocks you wouldn’t hold — get stuck with junk
2. Too much concentration — Wheel on 1 stock = single-name risk
3. Chasing high-premium strikes — assignment happens faster than expected
4. Ignoring earnings — assignment on earnings drops is common
5. Rolling puts for debit — never do this

Scenario 1: Put is going ITM, don’t want assignment

Symptom: Stock has dropped through your strike; put is now ITM by 1-3%.

Action A — Roll down and out for credit.

• Buy back current put at loss
• Sell a further-OTM put with more time (next month)
• Must be net credit
• Strike is lower (accept if assigned) and time is longer

Action B — Accept assignment.

• If you’d own the stock at this price anyway, let assignment happen
• Start writing covered calls next Monday
• This IS the Wheel working

Action C — Buy back and close, do nothing further.

• Take the option loss
• Wait; sell a fresh put next month at a different strike or don’t
• Best when: your fundamental view on the stock has changed

Scenario 2: Put is near-worthless with time left

Symptom: 15 days left; put worth ₹5 vs. original ₹50; stock rallied away.

Action: Buy back for near-full profit.

• Pay ₹875 to close (₹5 × 175)
• Keep ₹7,875 realized
• Redeploy capital in next month’s put at a fresh strike

The “close early” rule: when put value drops to under 25% of premium collected, close and redeploy. Time value is squeezing, gamma risk is rising, better opportunities await.

Scenario 3: Approaching expiry with put ATM

Symptom: 3 days left; stock at strike; put worth ~₹15.

Action A — Close for near-max profit.

• Pay ₹15 to close (~30% of original ₹50)
• Skip pin risk on expiry morning
• Redeploy immediately

Action B — Hold to expiry.

• Save closing cost
• Accept pin risk (small if strike is round number)

For most retail traders, closing early is safer.

Scenario 4: Earnings during position life

Symptom: You sold a put; earnings are announced for 2 days from now.

Action A — Close before earnings.

• Lock in current time decay
• Avoid IV crush + gap risk
• Redeploy after earnings

Action B — Hold through earnings.

• If IV was already elevated at entry, IV crush helps
• Directional risk is on you

Retail default: close before earnings on individual stocks. Only hold if the position is already deep OTM and safe.