Kevin Mak@KevinLMak
Yea, this is the incorrect way to look at it, but very common.
A cash secured put is very similar to a GTC buy order with two key exceptions, you CAN cancel a gtc order, and you benefit from a better fill price if the market gaps down overnight. These differences are crucial because it’s what you’re getting paid for (via collecting the premium).
So it’s not the “same thing” except you’re collecting a premium, it’s you’re collecting a premium because you’re taking more risk.
It’s a small but extremely important difference. Because implicitly (and explicitly in your comment) you’re only selling the put if the premium is juicy enough, for a stock you like. So you’re effectively making an “is IV too high or not” and/or “the stock will go up” assessment when you sell the put.
The “I don’t mind owning it anyways” has zero alpha.
This is important because many option sellers make it sound like the mechanical strategy of “just sell puts for stocks you would want to own anyways” is a great strategy. It isn’t. The data is conclusive that volatility as a whole isn’t structurally too high.
If this is working for you(over a large small size), it’s not the strategy that makes money, it’s your option picking skill. It’s the ability to pick stocks that a) are going up, so your delta exposure is driving profits, or b) don’t go down very much. You’re selling left tails and the realizations in the left tail are smaller than what you’ve sold.
But CRUCIALLY, a lot of people use “bad math/accounting” when reviewing their “success rate” of the strategy. To them, a cash secured put assignment doesn’t count as a “loss”, it just turns into a “long term investment.”
So if you calculate your strategy win rate it looks amazing because your wins count as “free yield” and your losses get shuffled into another pile. The correct way to assess the strategy is to take all your options trades from when you sold them to their value at opex. What you did with the assigned stock after is a different PL bucket.
To be clear, I’m not saying you’re bad at these trades or that you don’t have skill. I have no judgement on that. What I am saying for you (and many others) is there’s an incorrect logic in attribution. Saying “selling cash secured puts” is a great strategy is the same broad concept as saying “buy value stocks” is a great strategy.
The strategy isn’t special, it doesn’t work on its own. It requires specific skill to sell the right puts, or buy the right value stocks. Except selling puts has that deceptive “P&L shuffling” to make it appear extra effective.
