Important note: The strategies and examples described are purely for educational purposes. They assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor must conduct their own due diligence, considering their financial situation, risk tolerance, and investment objectives before making decisions. Remember, investing in the stock market carries risks, so make informed decisions.

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How it works with Disney right now

Disney shares are currently trading at USD 112.86. Suppose you would be happy to buy them at USD 105, a level about 7.7% below today’s price. You could sell a put option with a strike price of 105, expiring 19 September 2025.

By doing so, you agree to buy Disney shares at USD 105 if the market price is lower at expiration. In return for taking on that obligation, you receive an upfront premium. In this case, the premium is around USD 90 for one contract (100 shares), based on the latest option chain.

If the share price stays above USD 105 until expiry, you keep the premium and no shares are purchased. On the USD 10,500 you set aside for the trade, that’s a return of about 0.85% over 42 days, or 7.4% simple annualised — only if the option expires worthless.

If the share price falls below USD 105, you will buy 100 shares at that price. Your effective purchase price would be USD 104.10 after factoring in the premium received.

Potential advantages

• Income while you wait: You earn a premium instead of placing a limit order that pays nothing.
• Discounted entry point: If assigned, you buy the stock at a lower price than today.
• Defined plan: You know your maximum cash commitment and breakeven before starting.
• Flexibility: You can close or adjust the trade before expiry if market conditions change.

Potential risks and trade-offs

• Downside risk: If the stock falls sharply, you’ll still buy at the strike price, which may be above the market value at the time.
• Missed upside: If the share price rises well above today’s level, you keep the premium but won’t own the stock.
• Capital tied up: You need to keep the full amount in cash (USD 10,500 in this example) available until expiry.
• Early assignment: Possible at any time, especially around dividend dates.

Final thoughts

A cash-secured put can be a useful tool for investors who are happy to own Disney shares at a lower price, while potentially collecting income along the way. It’s important to remember that you are making a commitment to buy, and that the strategy works best when you are comfortable with that outcome. Balancing the possible benefits with the potential downsides helps ensure the approach fits your overall investment plan.