JPM is my go-to first example for illustration purposes, but I didn't realize it could indeed confuse someone unfamiliar with this who might think they need 26k to get started. Thanks for flagging this! I've swapped the example to VZ instead
In your Pillar Three example, what if JPM doesn’t just fall below $265, but it falls to $240? You are paying $22 and change more per share than the stock is currently valued. This doesn’t feel like buying a great asset at a discount; it feels like taking someone else’s loss off their hands. Am I missing something?
You are asking exactly the right question - this is the scenario every put seller needs to stress test.
That's why strike selection matters a lot. I only sell puts below my fair value estimate. If JPM is worth $300-320 based on fundamentals, $262-265 is still a discount even if the market temporarily panics to $240.
Time is your friend. Dividends and future covered call premiums chip away at that cost basis - often without the stock moving.
You have options: before expiration you can roll down/out or adjust if the thesis changes.
Also important rule is limiting any CSP to 3-5% of portfolio, so even a bad outcome doesn't crater the account.
Essentially you only sell puts at strikes where you genuinely want to own the business. Treat assignment as the strategy working the way it should. Assignment at a 'high' price stings short term, but if you picked the strike based on solid valuation work you're still buying a quality asset at a net discount.
I haven’t looked at the jpm chart, but generally you’d want to pick strikes at solid supports/resistances for buying/selling. I also would look for more confluence (such as vpoc, sma/ema* etc, not all supports are equal) Keep in mind that selling a csp, you’re doing so with the intention that you may own the stock. If you never want to get exercised then you would pick a further strike or defend against the position as the position gets closer to the money
How do you sell a $265 CSP on JPM in a $10,000 account?
I figured it was an example of the exercise
JPM is my go-to first example for illustration purposes, but I didn't realize it could indeed confuse someone unfamiliar with this who might think they need 26k to get started. Thanks for flagging this! I've swapped the example to VZ instead
Cheers
In your Pillar Three example, what if JPM doesn’t just fall below $265, but it falls to $240? You are paying $22 and change more per share than the stock is currently valued. This doesn’t feel like buying a great asset at a discount; it feels like taking someone else’s loss off their hands. Am I missing something?
You are asking exactly the right question - this is the scenario every put seller needs to stress test.
That's why strike selection matters a lot. I only sell puts below my fair value estimate. If JPM is worth $300-320 based on fundamentals, $262-265 is still a discount even if the market temporarily panics to $240.
Time is your friend. Dividends and future covered call premiums chip away at that cost basis - often without the stock moving.
You have options: before expiration you can roll down/out or adjust if the thesis changes.
Also important rule is limiting any CSP to 3-5% of portfolio, so even a bad outcome doesn't crater the account.
Essentially you only sell puts at strikes where you genuinely want to own the business. Treat assignment as the strategy working the way it should. Assignment at a 'high' price stings short term, but if you picked the strike based on solid valuation work you're still buying a quality asset at a net discount.
I haven’t looked at the jpm chart, but generally you’d want to pick strikes at solid supports/resistances for buying/selling. I also would look for more confluence (such as vpoc, sma/ema* etc, not all supports are equal) Keep in mind that selling a csp, you’re doing so with the intention that you may own the stock. If you never want to get exercised then you would pick a further strike or defend against the position as the position gets closer to the money