Assignment of the Week · Puzzle #4
Would you take this assignment? #4: Too big?
The scenario
- $20,000 account
- $150 stock, $150 put pays $4.50
- 30 days to expiry
$20,000 account. A $150 stock has a juicy put: the $150 strike pays $4.50 for 30 days. That's 3% in a month. Would you take this assignment risk?
Work it out first (the wheel calculator helps), then open the answer.
Show the answer and the math
Short answer: Collateral is $15,000, or 75% of the account in one name. The return is fine; the position size fails.
Worked math
- Collateral: $150 × 100 = $15,000, or 75% of a $20,000 account.
- Return on capital: $450 ÷ $15,000 = 3% for 30 days (≈36.5% annualized). On the whole account it's $450 ÷ $20,000 = 2.25%.
- If the stock drops 20% to $120: Basis $145.50. Loss = ($145.50 − $120) × 100 = $2,550, about 12.75% of the entire account from one trade.
- A per-position cap: At a 20% cap you'd keep collateral near $4,000, which means strikes around $40 or lower on a $20,000 account.
The takeaway
Premium percentages look the same at any size, so they hide concentration. Decide your per-position cap first, then look for premium among stocks that fit it. One assignment shouldn't decide your year.
Run your own numbers, then read the full cycle
Plug any put or call into the free, no-signup wheel calculator to see return on capital, annualized return and breakeven side by side.
The whole cycle (cash-secured put, assignment, covered call, and what to do when it goes wrong) is laid out step by step in Spin the Wheel, Cash the Checks by Logan Sterling (Kindle, $6.99, or free on Kindle Unlimited).
Hypothetical numbers for teaching, not a trade recommendation. Educational only, not financial advice. Options involve risk. Selling options can result in substantial losses, and no particular result or income is guaranteed. See the full disclaimer.