NVAX & RUM Down: Selling Puts to Lower Cost Basis Strategy

Understanding Strategic Position Management During Market Downturns

When stocks in your portfolio experience significant declines, the natural inclination might be to continue your regular covered call strategy. However, there are times when this approach can actually work against your long-term profitability. This article explores a critical situation where pausing covered calls and focusing exclusively on cash-secured puts becomes the smarter tactical choice.

The scenario discussed here involves two volatile stocks, NVAX and RUM, that have experienced substantial price depreciation. When your cost basis sits significantly above the current market price, traditional covered call strategies can become problematic. Selling calls too close to your cost basis risks assignment at a loss, while selling calls far above your cost basis yields negligible premium.

The solution lies in temporarily shifting strategy focus to the put side of the trade, systematically lowering your cost basis until covered calls once again become viable at attractive premium levels.

The Problem: When Covered Calls Stop Making Sense

Let's examine the specific challenge presented in this weekly follow-up session. After entering executed transactions from the previous week, two positions demonstrate why selling covered calls isn't always the optimal move.

NVAX Position Analysis

The NVAX position illustrates the core problem perfectly. With 300 shares held and a cost basis without premium at $25.20, but with premium factored in bringing it down to $20.96, the current market price sits at just $16.73. This represents a significant gap between acquisition cost and market value.

When you sell a cash-secured put at the $16 strike price for $70 in premium, you're strategically positioning for several positive outcomes. The $1,600 in collateral required ties up capital temporarily, but the potential benefits significantly outweigh this temporary commitment.

RUM Position Dynamics

The RUM position demonstrates similar challenges with even more dramatic numbers. With a cost basis of $10.70 without premium and $8.34 with premium collected, the current market price of $7.92 leaves little room for profitable covered call strikes.

Multiple transactions on the put side demonstrate the systematic approach to building position and lowering cost basis:

• One cash-secured put at the $8.50 strike collected $40 in premium
• Earlier positions had added 100 shares of collateral commitment
• The total collateral commitment reached $850 for the position
• Each put sold incrementally improves the overall cost basis

On the call side, when forced to go three weeks out to December 23rd for an $11.50 strike price, the premium collected was minimal—just $10 for two contracts, or five cents per share. This exemplifies the futility of forcing covered call trades in unfavorable conditions.

The Strategic Shift: Focusing Exclusively on Puts

The core strategy pivot involves recognizing when market conditions favor put selling over covered calls. This isn't abandoning the bilateral trading approach permanently—it's a tactical adjustment based on current price positioning.

Why Puts Work When Calls Don't

Cash-secured puts provide several advantages in declining markets when you're holding shares well above current market price:

• Meaningful Premium Collection: At-the-money puts generate substantial premium compared to far out-of-the-money calls
• Cost Basis Reduction: Every put sold lowers your effective cost basis, whether it expires worthless or gets assigned
• No Assignment Risk at Loss: Unlike covered calls below cost basis, put assignment actually improves your position by acquiring shares at lower prices
• Flexibility Preservation: You maintain your share position for future upside while systematically improving your basis
• Natural Market Timing: As the stock bounces within its normal volatility range, you're positioned to restart covered calls when premiums justify the strategy

The Patience Component

One critical element of this strategy requires discipline that many traders struggle with: patience. When you see your shares sitting idle without covered calls sold against them, there's a psychological pressure to "do something" with the position.

However, forcing covered call trades for pennies in premium three weeks out accomplishes little. You lock up shares for minimal compensation, and if the stock happens to rally, you've capped gains for essentially no benefit.

Instead, the strategic approach involves:

• Actively selling puts at attractive premiums on the downside
• Patiently waiting for stock price movement toward your cost basis
• Monitoring for opportunities when covered call premiums become meaningful again
• Recognizing that doing nothing on the call side is sometimes the optimal choice

Tracking Multiple Position Types Simultaneously

This weekly follow-up session demonstrates the importance of managing multiple tickers with different strategies simultaneously. While NVAX and RUM receive the put-focused approach, other positions continue generating income through traditional bilateral trading.

CLOV Position Management

The CLOV ticker illustrates continued bilateral trading with both puts and calls active:

• Sold to open two puts at the $1.00 strike for December 16th, collecting $1 per contract
• Simultaneously sold to open four calls at the $2.00 strike for December 16th, also at $1 per contract
• Added collateral tracking for the two put contracts ($200 total at $1 strike)
• Maintained balanced approach with income from both sides of the position

MVIS Transaction Flow

The MVIS positions show active management across both puts and calls with careful attention to collateral requirements:

• Two puts at the $3.00 strike expiring December 9th for $7 each ($14 total premium)
• Collateral requirement of $600 for these two contracts ($3 strike × 100 shares × 2 contracts)
• Two calls at the $4.00 strike expiring December 9th for $1 each
• Lower premium amounts acknowledged but accepted due to transition plan

The Critical Role of Collateral Tracking

One easily overlooked aspect of systematic put selling involves accurately tracking collateral commitments. Each time you sell a cash-secured put, capital must be set aside to potentially purchase shares if assigned.

Calculating Collateral Requirements

The collateral calculation is straightforward but must be tracked carefully:

• Formula: Strike Price × 100 shares per contract × Number of contracts
• NVAX Example: $16 strike × 100 × 1 contract = $1,600 collateral
• RUM Example: $8.50 strike × 100 × 1 contract = $850 collateral
• CLOV Example: $1 strike × 100 × 2 contracts = $200 collateral
• MVIS Example: $3 strike × 100 × 2 contracts = $600 collateral

Why Tracking Matters

Several scenarios demonstrate the importance of meticulous collateral tracking:

• Capital Management: Knowing your true available capital prevents over-committing and margin calls
• Position Sizing: Understanding total exposure across multiple tickers helps manage portfolio risk
• Strategic Planning: When you know exactly how much capital each position ties up, you can optimize new opportunity evaluation
• Assignment Preparedness: If multiple puts get assigned simultaneously, you need confidence in your ability to fulfill obligations

The video session shows multiple instances where collateral entries were initially forgotten, then added after recognizing the oversight. This highlights how easy it is to miss this component when focused on premium collection and strike selection.

Portfolio Performance When Holdings Are Underwater

A candid look at the dashboard reveals the reality many option sellers face: when underlying stocks decline significantly, overall portfolio performance suffers despite consistent premium collection.

Understanding the Negative Position

The portfolio shows an overall negative position driven primarily by two underwater stocks:

• NVAX Impact: Trading at $16.73 while cost basis with premium sits at $20.96 (cost basis without premium: $25.20)
• RUM Impact: Trading at $7.92 while cost basis with premium sits at $8.34 (cost basis without premium: $10.70)
• Combined Effect: These two positions pulling the portfolio into negative territory of approximately -$1,600

The Path Forward: Premium Accumulation

The strategy for recovering from underwater positions combines patience with systematic premium collection:

• Continued Put Selling: Each week, selling at-the-money or slightly out-of-the-money puts collects meaningful premium
• Cost Basis Erosion: Premium collected continuously lowers the effective cost basis, bringing it closer to current market price
• Natural Market Recovery: Over time, quality stocks tend to recover from temporary selloffs
• Dual Recovery Mechanism: Portfolio improves both through rising stock prices AND falling cost basis from premiums
• Eventual Call Opportunities: As stock price rises or cost basis falls (or both), covered calls become profitable again

Monthly Premium Tracking and Realistic Expectations

The premium tracking section reveals important insights about income consistency when implementing strategic adjustments and transitioning between brokers.

Current Month Performance

After one weekend of trading, the portfolio shows $142 in collected premium for December. This represents a slower start compared to previous months for several specific reasons:

• Capital Migration: In the process of moving significant capital from Robinhood to TD Ameritrade
• Lower Premium Positions: Existing positions generating smaller premiums due to unfavorable strike positioning
• Strategic Patience: Deliberately avoiding low-premium covered calls that provide minimal value
• Transition Period: Natural income decline during portfolio restructuring

The Fee Structure Impact

Moving to TD Ameritrade's Think or Swim platform introduces a $0.65 per contract fee that significantly impacts strategy:

• A $1 premium option nets only $0.35 after fees (65% fee burden)
• A $2 premium option nets $1.35 after fees (32.5% fee burden)
• A $5 premium option nets $4.35 after fees (13% fee burden)
• Higher premium targets become economically necessary

This fee structure naturally pushes strategy toward higher-priced stocks, longer-duration trades, or more volatile underlyings that command higher premiums. The days of collecting $1 or $2 per contract on lower-priced stocks become less attractive when fees consume such a large percentage.

Advanced Strategy: Stock Price Bounce Timing

One of the more nuanced strategic concepts discussed involves timing covered call entries based on natural stock price oscillation. This approach requires patience but can significantly improve premium collection.

The Bounce Concept

Stocks naturally move up and down within trading ranges, even during overall downtrends. Rather than forcing covered call trades when stocks sit near lows:

• Wait for Upward Movement: Monitor for days when the stock bounces upward within its range
• Strike Prices Become Attractive: Higher stock price makes previously unattractive strikes more reasonable
• Premium Improves: At-the-money premiums increase as the underlying rises
• Weekly Duration Works Again: No need to go multiple weeks out for acceptable premium
• Better Risk/Reward: You're selling closer to your cost basis without the same assignment risk

Practical Implementation

Consider the RUM example where calls three weeks out at $11.50 only collected $0.05 per share in premium. The alternative approach would be:

• Don't sell any calls while stock trades at $7.92
• Continue selling puts for meaningful premium (like the $40 collected on the $8.50 put)
• Watch daily for upward price movement
• If stock bounces to $8.50-$9.00, covered call premiums become attractive
• Sell weekly covered calls at strikes near cost basis for $20-$50 per contract
• Collect meaningful premium on both sides of the trade

Transitioning Away from Low-Premium Tickers

The session includes important commentary about evolving strategy away from lower-priced stocks that generate minimal premium. This represents a natural progression for option sellers as they gain experience and capital.

Why Lower-Priced Stocks Lose Appeal

Several factors make low-priced stocks less attractive for systematic option income:

• Absolute Premium Amounts: A stock trading at $3 simply can't generate $50+ weekly premiums
• Fee Impact: Fixed per-contract fees eat larger percentages of small premiums
• Time Investment: Managing positions takes similar time regardless of premium size
• Capital Efficiency: Same number of contracts on higher-priced stocks generates significantly more income
• Strike Width Limitations: Lower-priced stocks have tighter strike spacing, limiting strategic flexibility

The Graduation Strategy

The plan outlined involves a deliberate graduation to higher-quality, higher-priced underlyings:

• Exit Existing Positions: As current low-priced positions close or get called away, don't replace them
• Redirect Capital: Move freed capital into higher-priced, more liquid stocks
• Focus on Premium Per Hour: Select stocks where premium justifies management time
• Consider Fee Structures: Choose position sizes where fees are negligible percentages
• Maintain Learning: Recognize that experience with lower-priced stocks built skills applicable to better opportunities

This transition doesn't mean the time spent with lower-priced stocks was wasted. The process of learning position management, understanding cost basis tracking, and developing strategic flexibility applies regardless of underlying price. However, once these skills are developed, applying them to higher-premium opportunities makes economic sense.

The Power of Detailed Cost Basis Tracking

Throughout this session, the critical importance of accurate cost basis tracking becomes evident. Without precise tracking of both cost basis with and without premium, strategic decisions become guesswork.

Why Two Cost Basis Numbers Matter

Tracking both cost basis figures provides different strategic insights:

• Cost Basis Without Premium: Shows true capital at risk and break-even for the position
• Cost Basis With Premium: Reflects economic reality including income collected
• Strike Selection: Compare strikes to both numbers to understand assignment implications
• Exit Planning: Know when you're exiting at profit versus loss on capital deployed
• Tax Reporting: Cost basis without premium typically matters for tax calculations

MyATMM's Role in Strategic Execution

The session demonstrates how MyATMM enables this exact strategy through:

• Real-Time Cost Basis Calculation: Instantly see how each transaction affects position basis
• Collateral Tracking: Manage cash requirements across multiple tickers with active put positions
• Premium Accumulation Visibility: Track total premium collected to measure strategy effectiveness
• Assignment Impact Projection: See proposed cost basis if current puts get assigned
• Historical Transaction Log: Review past trades to identify patterns and optimize future decisions

Conclusion: Strategic Flexibility Drives Long-Term Success

This weekly follow-up session illustrates a crucial principle for option income traders: rigid adherence to any single strategy often produces suboptimal results. The bilateral approach of selling both covered calls and cash-secured puts works beautifully in most market conditions, but markets occasionally create situations where adjustment becomes necessary.

When stocks in your portfolio decline significantly below your cost basis, recognize the signals:

• Covered call premiums become negligible unless going far out in time
• Strike prices that offer decent premium sit too close to cost basis, creating assignment risk at loss
• Capital sits idle in shares that generate little income

The strategic response involves temporarily emphasizing put selling while patiently waiting for conditions that make covered calls attractive again. This isn't abandoning the bilateral approach—it's recognizing that sometimes one side of the trade offers dramatically better opportunities than the other.

By selling cash-secured puts at meaningful premiums, you accomplish multiple objectives simultaneously:

• Generate income despite unfavorable covered call conditions
• Systematically lower your cost basis through premium collection
• Position for eventual share assignment at prices below current market
• Maintain flexibility to resume covered calls when stock price bounces
• Avoid locking up capital in low-premium, long-duration covered calls

The path back to profitability for underwater positions combines patience, systematic premium collection, and strategic flexibility. Whether the underlying stocks recover in price or you grind down your cost basis through accumulated premium (or both), the position gradually improves. The key is maintaining the discipline to execute the strategy that makes sense for current conditions rather than forcing trades that provide minimal benefit.

Most importantly, accurate cost basis tracking makes this entire strategic approach possible. Without knowing precisely where you stand—both with and without premium included—strategic decisions become speculation. Tools that provide this visibility transform option selling from a guessing game into a calculated, systematically improvable process.

Risk Disclosure

Options trading involves substantial risk and is not suitable for all investors. The strategies discussed in this article, including selling cash-secured puts and covered calls, can result in significant losses. Past performance does not guarantee future results.

Selling cash-secured puts obligates you to purchase shares at the strike price, which may be above market price at assignment. Covered calls cap your upside potential and may result in shares being called away. Both strategies require adequate capital and risk management.

This content is for educational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making investment decisions. Ensure you fully understand the risks and mechanics of any options strategy before implementation.