Using a pullback to enter a position at a discount
Has traded stocks for 2 years, options for 3 months
$45,000
Buy AMD at a lower price while collecting premium
AMD just pulled back 8% after a broader tech selloff. The stock dropped from $168 to $154 in a week. IV has spiked to 48% - well above AMD's typical 32-35% range. For reference, AMD's IV usually sits between 28% (calm) and 55%+ (earnings/high volatility). At 48%, put premiums are juicy because the market is pricing in continued uncertainty.
Sarah has been watching AMD for months. She thinks it's a great AI play but always felt it was too expensive. This pullback is her chance, but she doesn't want to catch a falling knife. With $45K in her account, a $14,500 cash-secured put uses about 32% of her capital - right in her comfort zone of under 40% per position.
Opens The Greeks Report and selects "Cash-Secured Put" from the strategy filter
Notices AMD showing elevated IV (good for put sellers)
Looks for strikes with 15-20% AROC and reasonable delta
Finds the $145 put at 0.28 delta with 19.2% AROC
Checks her account: she has $45,000, and securing $14,500 for this trade leaves plenty of dry powder
Sarah pulls up her broker to verify prices. AMD has bounced $1.50 since the last data refresh. The $145 put is now showing $3.95 instead of $4.35. She checks nearby strikes - the $147.50 put is at 0.27 delta with $4.80 premium. "That matches the delta I wanted," she notes. She goes with the $147.50 strike.
Why this trade: The $147.50 strike is 4.4% below current price. If AMD drops there, Sarah would be buying at a level it bounced from twice in the past month. She'd be happy owning 100 shares at $147.50 - that's only $14,750 or about 33% of her portfolio.
$147.50 Put
March 7th (32 DTE)
$4.80 per share
1
$480 (premium collected)
$14,270 (if AMD goes to $0 - theoretical)
$142.70 (strike - premium)
$14,750 (cash to buy 100 shares if assigned)
71%
Trade entered. $480 premium collected. Sarah sets an alert at $150 (psychological level).
AMD dropped more. Put is now worth more than she sold it for. Paper loss, but she's not panicking - this is why she picked a strike she'd be happy owning at.
AMD bounced. Put value dropped. Sarah is back in profit. Theta is accelerating as we pass the 20-day mark.
Stock rallied further. Put is now way out of the money. Theta is crushing the remaining value.
Small pullback but put is so far OTM it barely moved. Sarah decides to close here.
Day 26
$0.60
+$420
2.8% in 26 days (39.8% annualized on capital at risk)
Why exit here: Sarah captured 88% of max profit with 6 days left. The remaining $60 isn't worth the gamma risk of holding through the last week. She'll use the freed-up capital to sell another put.
High IV after a pullback is the sweet spot for put selling - you get paid more for the same risk
Paper losses don't matter if you're committed to owning the stock at your strike price
Keep cash-secured puts to under 40% of your account - you want dry powder for other opportunities
Always verify prices before trading - markets move fast and data can be hours old
The 'boring' outcome (stock goes up, put expires worthless) is actually the profitable one