Why I Sold a Put 40% Below the Stock Price

There’s a mistake I made early on, and I still see new traders make it every week: they sell a cash-secured put as close to the stock price as they dare, because that’s where the biggest premium is. Then the stock slips a little, the put goes in the money, and suddenly they’re facing an assignment they never really planned for — on a position bigger than they meant to take.

So when I opened a put last week with a strike sitting about 40% below where the stock was trading, it might look like I left money on the table. I didn’t. I want to walk you through exactly how I structured it, the checks I ran before I clicked the button, and the one number I always come back to.

This is educational content, not personalised financial advice. Options involve risk and are not suitable for every investor. Always size trades according to your risk tolerance, account size, and strategy understanding.

The trade

Here are the real numbers. I don’t believe in teaching with made-up examples.

  • Stock: IREN — a bitcoin-mining and AI data-centre company — trading around $59
  • Strategy: cash-secured put, 2 contracts
  • Strike: $35
  • Expiration: 21 August — about 65 days out
  • Net credit: $256
  • Probability of profit: roughly 85%
  • Breakeven: $33.72

Two contracts at a $35 strike means I’ve set aside $7,000 in cash as collateral. That’s what makes it cash-secured — the money to buy the shares is already parked, doing nothing else, waiting in case I’m assigned. If IREN somehow falls below $35 by expiry, I buy 200 shares at $35. Because I collected $1.28 per share in premium, my true cost would be $33.72 a share — that’s the breakeven.

A strike 40% below the current price, and it still paid $256. To a lot of people that doesn’t add up. Here’s why it does.

Why a strike that far out still paid

The answer is one word: volatility.

When a stock is “calm”, you have to sell strikes close to the money to collect anything worth having. When a stock moves a lot, the options market charges more for the possibility of a big move — and that shows up as fatter premium across every strike, even the ones far away from the price.

IREN is about as far from calm as a stock gets. Its beta is close to 3.9, meaning it tends to move almost four times as hard as the broad market. When I entered, its IV rank was 41 — implied volatility was sitting in the upper part of its own range. High volatility is the reason a strike 40% out of the money can still be worth selling.

This is the part I want beginners to really sit with: premium is the market paying you to take on risk. A fat credit is never a gift. It is compensation. The discipline is not finding rich premium — that’s easy. The discipline is taking it only where you’ve decided the risk is one you can live with.

The four checks I run before I enter

I never sell a put on the size of the credit alone. Here’s the short checklist that came before this one.

1. Earnings timing. IREN’s next earnings report lands on 16 September — after my 21 August expiry. I don’t want to be short premium through an earnings print on a stock this volatile; a surprise can move it 20% overnight. Because the report sits outside my window, I’m not holding through that event. This is the first thing I check on any volatile name, every time.

2. Breakeven, not strike. My strike is $35, but my real line in the sand is $33.72 — the strike minus the premium I collected. That’s the price IREN would have to be below at expiry before this trade costs me money. Knowing the breakeven, not just the strike, is what lets you size a trade honestly.

3. Am I actually willing to own it? This is the question that separates a real cash-secured put from a gamble. If I’m assigned, I own 200 shares of IREN at an effective $33.72. So before I sold, I had to be honest: would I be content holding this stock at that price and working it from there? If the answer is no, the trade is wrong no matter how good the premium looks. A cash-secured put is a commitment to buy, dressed up as income.

4. Size. Two contracts, $7,000 of collateral set aside in full. Not on margin, not leveraged into a position I couldn’t actually fund. On a stock that swings this hard, position size is the difference between a manageable trade and a problem.

The number that actually matters: return on capital

Here’s where I’ll be completely straight with you, because it’s the heart of this whole article.

I could have run this same trade on margin instead of securing it with cash. The broker would only have held about $1,115 in buying power, and on that basis the return looks enormous — over 20% on the capital tied up, in nine weeks. That’s the kind of number people like to screenshot.

I don’t trade that way, and I don’t quote that number, because it’s misleading. The honest figure is the return on the capital I’ve genuinely committed:

$256 ÷ $7,000 = 3.66% over 65 days, which works out to roughly 20.5% annualised (non-compounding).

Put that next to a calmer trade I’ve shared before — my SOFI wheel cycle returned about 2.36%, or 6.62% annualised. Same strategy, completely different stock. IREN pays more because it carries more volatility and more risk. That’s the entire trade-off in one comparison. Higher return is not a free upgrade; it’s a price tag on risk.

Return on capital, measured against the cash you’ve actually reserved, is the only honest way to compare one premium-selling trade against another. The flashy margin number hides exactly the thing you most need to see.

What I track, and why it’s the whole game

None of this works if you don’t write it down. I log every leg of this IREN trade — the credit, the breakeven, the collateral reserved, the running ROC, the cost basis if I’m assigned — so I always know my real numbers and not the story I’d like to tell myself. Without a tracking tool, you’re selling premium blind: collecting credits with no clear picture of whether the strategy is actually working over time.

That’s the discipline I built my All In Trading Options Journal around — knowing your portfolio numbers, your ROC, your cost basis, your strategy mix, at a glance. Trading is a numbers game. Without a number-based compass, you’re guessing.

If you’re newer and you want to start with the strategy this trade comes from, my Wheel Strategy explainer walks through the full cycle — sell a put, get assigned, sell covered calls, repeat — and the Wheel Strategy Spreadsheet tracks it stock by stock.

Sell the volatility you understand. Reserve the cash. Know your breakeven. And write it all down.
Happy trading!

This is educational content, not personalised financial advice. Options involve risk and are not suitable for every investor. Always size trades according to your risk tolerance, account size, and strategy understanding.