| Cash-covered put yields assume that the required net amount to purchase the stock is deposited prior to writing a naked put. If the put is assigned the stock would be purchased at a net cost of the strike price minus the premium received. The yield is calculated by dividing the income by the net cost. The income is the premium received for out-of-the money puts, or the amount above and beyond the in-the-money amount for in-the-money puts. With cash-covered put writes, the goal is to either pocket the premium if the option expires worthless, or if assigned on the put option to buy the stock at the strike price which is a discount to the current price. If the stock goes down below your purchase price by more than the option income received, you have a loss. |
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