Got Paid $124 to Buy CLOV Shares: Cash-Secured Puts Strategy to Lower Cost Basis

Getting Paid to Buy Stocks: The Strategic Advantage of Cash-Secured Puts

What if you could get paid over $124 to commit to buying a stock you already planned to purchase anyway? That's exactly what cash-secured puts allow you to do—and the benefits extend far beyond just collecting premium.

When you're holding shares with a high cost basis and the stock price has declined significantly, traditional covered call premiums become minimal or even impractical. You're stuck targeting strike prices above your original purchase price just to break even, which often means accepting tiny premiums that barely make the strategy worthwhile.

This article demonstrates a powerful solution: using cash-secured puts to strategically acquire additional shares at a lower price point while collecting upfront premium. The result? You lower your overall cost basis, which enables you to target more profitable covered call strike prices going forward—all while getting paid to do it.

                                Key Insight: By selling cash-secured puts at strike prices below the
                                current market price, you're essentially committing to buy shares at a discount—and
                                getting paid premium immediately for making that commitment. This dual benefit creates
                                opportunities even when your existing position is underwater.
                            

The Challenge: High Cost Basis Limits Covered Call Options

Many option sellers encounter a common and frustrating scenario: you buy shares of a stock, the price subsequently drops significantly, and suddenly your profitable covered call strategy becomes nearly impossible to execute effectively.

Understanding the Cost Basis Dilemma

Consider this real-world example with CLOV (Clover Health):

Current position: 400 shares owned at $2.01 cost basis (without premium)
Current stock price: $1.09 per share
Cost basis with premium: $1.77 per share
Problem: To avoid realizing losses, covered calls must be sold at $2.00 strike or higher

When you're forced to target strike prices significantly above the current market price, two problems emerge:

Minimal premium collection: Far out-of-the-money covered calls offer very little premium because the probability of assignment is low
Opportunity cost: Your capital is tied up in shares generating minimal income, when those same dollars could be working harder elsewhere

Why This Matters for Cash Flow Investors

If you're investing specifically for cash flow and income generation through options, having positions that can't generate meaningful premium defeats the entire purpose. The stock may eventually recover, but in the meantime, you're missing out on weeks or months of potential income.

Real Position Analysis

Existing CLOV Position:

400 shares owned at $2.01 cost basis = $804 total investment
Current value at $1.09 = $436 (46% decline)
Unrealized loss: $368
To break even: Stock must rise 84% back to $2.01

Covered Call Challenge: With stock at $1.09, selling calls at $2.00 strike generates minimal premium because it's so far out-of-the-money.

                                The Core Problem: Your cost basis determines your minimum covered call
                                strike price if you want to keep your collected premiums. The higher your cost basis
                                relative to the current stock price, the less premium you can collect.
                            

The Solution: Strategic Cost Basis Reduction Through Cash-Secured Puts

Instead of simply buying more shares at the current market price to average down, there's a more profitable approach: sell cash-secured puts and get paid to commit to buying those shares.

The Trade Strategy Breakdown

Here's how the actual CLOV trade was structured:

Action: Sold 3 cash-secured put contracts
Strike price: $1.50
Expiration: 2 days (Friday)
Premium collected: $0.42 per share × 300 shares = $126 (actual credit received: $124.01 after fees)
Current stock price: $1.09

Why This Trade Makes Strategic Sense

Let's analyze the logic behind this specific trade structure:

1. Comparison to Direct Purchase

If you bought 300 shares at the current price of $1.09, you would pay $327 and your effective cost basis would be exactly $1.09 per share. But by selling puts at the $1.50 strike and collecting $0.42 premium:

Obligation to buy at: $1.50 per share = $450 total
Premium received: $124
Net effective cost: $450 - $124 = $326 for 300 shares
Effective cost per share: $1.08 (nearly identical to buying at $1.09 today)

2. Immediate Income Generation

You receive the $124 premium immediately when you sell the put contracts. This is real cash in your account today, regardless of what happens with the stock price over the next two days.

3. Multiple Positive Outcomes

This trade setup creates favorable results across different scenarios:

Scenario Analysis: Possible Outcomes

Scenario A: Stock Stays Below $1.50 (Most Likely)

Result: Assigned 300 shares at $1.50 strike
You've lowered your cost basis as planned
Collected $124 premium immediately
Net effective purchase price: $1.08 per share

Scenario B: Stock Rises Above $1.50 (Unlikely in 2 Days)

Result: Puts expire worthless, you keep $124 premium
You don't get assigned, but you profited anyway
Your existing 400 shares are now worth more
You can sell new cash-secured puts and repeat the strategy

Scenario C: Stock Rises to $1.25 (Partial Gain)

Result: Still assigned at $1.50, but stock is trending up
You bought shares at $1.50 when market price is $1.25
But you still collected $124 premium
Overall cost basis still significantly reduced

                                Strategic Advantage: You're essentially buying shares at today's price
                                level ($1.08 effective cost) while setting the strike at $1.50—which gives you
                                flexibility to potentially avoid assignment if the stock rallies strongly, yet still
                                collect the full premium.
                            

The Cost Basis Transformation: Before and After Analysis

Understanding exactly how this trade impacts your overall position metrics is crucial for appreciating the strategy's power.

Position Metrics Before the Trade

Shares owned: 400 shares
Cost basis (without premium): $2.01 per share
Cost basis (with premium): $1.77 per share
Active put contracts: 200 shares at $1.00 strike (separate position)
Total collateral committed: Existing
Credits received: $92 (from previous trades)

Position Metrics After Adding the New Trade

Total shares (when assigned): 700 shares
Cost basis (without premium): $2.01 per share (existing shares)
Proposed cost basis (with puts): $1.61 per share
Cost basis (with all premium): $1.46 per share
Active put contracts: 500 shares ($1.00 and $1.50 strikes combined)
Additional collateral committed: $450
Total credits received: $216 ($92 + $124)

The Critical Improvement: Covered Call Strike Price Options

This is where the strategy truly shines. By lowering your cost basis from $2.01 to approximately $1.61 (and $1.46 with premium), you unlock new covered call opportunities:

Covered Call Flexibility Comparison

Before Cost Basis Reduction:

Must target $2.00 strike to break even
$2.00 strike is 83% above current price ($1.09)
Premium at $2.00 strike: minimal (very low probability)
Limited income generation potential

After Cost Basis Reduction:

Can target $1.50 strike and still break even
$1.50 strike is only 38% above current price ($1.09)
Premium at $1.50 strike: significantly higher than $2.00 strike
Much greater income generation potential
Higher probability of collecting premium repeatedly

Why Lower Strike Prices Mean More Premium

Option premium is directly related to the probability of the option finishing in-the-money at expiration. Strike prices closer to the current stock price have higher probabilities of assignment, which means sellers can demand higher premiums.

In the CLOV example:

A $2.00 covered call is far out-of-the-money and offers minimal premium
A $1.50 covered call is much closer to the current price and commands substantially more premium
The ability to sell at $1.50 instead of $2.00 could mean 2-3x the weekly premium income

                                The Compounding Effect: Not only do you collect $124 today from the
                                cash-secured puts, but you've also positioned yourself to collect significantly higher
                                covered call premiums every single week going forward. This is a one-time trade that
                                improves your income potential indefinitely.
                            

Practical Application: When and How to Use This Strategy

While this strategy is powerful, it's not appropriate for every situation. Here's how to determine when it makes sense for your portfolio.

Ideal Conditions for This Strategy

1. You Own Shares with High Cost Basis

This strategy is designed specifically for positions where your original purchase price is significantly above the current market price. The greater the gap between your cost basis and the current price, the more valuable this approach becomes.

2. Stock Has Declined 30% or More

When stocks have dropped substantially, covered call premiums at your break-even strike become very thin. This is the perfect time to consider cost basis reduction through additional share acquisition via puts.

3. You Still Believe in the Long-Term Potential

Only use this strategy on stocks you're genuinely willing to own more of. Don't throw good money after bad on a stock you've lost confidence in. The goal is to improve a position you still want to hold, not to average down on a failing investment.

4. Adequate Put Premium Is Available

Look for strike prices that offer substantial premium (ideally 20-30% of the strike price for near-term expirations). If puts are trading for just pennies, the strategy may not be worth the commission costs and risk.

Step-by-Step Implementation Guide

Step 1: Analyze Your Current Position

Document your current share count and cost basis
Note the current stock price
Calculate the gap between your cost basis and current price
Determine your current minimum covered call strike (break-even point)

Step 2: Evaluate Put Option Opportunities

Review the option chain for near-term expirations (1-7 days typically)
Identify strike prices between current price and your desired cost basis
Check the premium available at each strike
Calculate your effective cost per share (strike - premium)

Step 3: Calculate the Cost Basis Impact

Determine how many new shares you'd acquire if assigned
Calculate your new blended cost basis across all shares
Confirm this new cost basis enables better covered call strike selection
Verify you have sufficient capital for assignment

Step 4: Execute the Trade

Sell cash-secured put contracts at your selected strike and expiration
Ensure you have sufficient cash in your account for assignment
Document the trade details (premium, strike, expiration)

Step 5: Manage the Outcome

If assigned: Update your cost basis records and prepare new covered call positions
If expired worthless: Keep the premium and consider repeating the strategy
Track all premium collected in a tool like MyATMM for accurate cost basis

Alternative Scenario: Higher-Priced Stocks

While this example uses CLOV (a low-priced stock), the same principle applies to any price point:

Example: $50 Stock Scenario

You own 100 shares at $75 cost basis (now trading at $50)
Sell 1 cash-secured put at $55 strike for $5.00 premium
Effective purchase price if assigned: $50.00 ($55 - $5)
New blended cost basis: $62.50 (instead of $75)
You can now sell covered calls at $60-65 instead of $75+

Risk Considerations and Trade-Offs

While this strategy offers significant advantages, it's important to understand the risks and potential downsides before implementing it in your portfolio.

Primary Risks to Consider

1. Continued Stock Decline

The most obvious risk is that the stock continues falling after you're assigned. If CLOV drops from $1.09 to $0.75, your newly acquired shares at $1.50 effective cost ($1.08 after premium) will show immediate losses.

Mitigation: Only use this strategy on stocks where you have conviction in the long-term fundamentals. The premium you collect provides some downside cushion, but it won't fully protect against major declines.

2. Opportunity Cost

By committing additional capital to acquire more shares of a declining stock, you're unable to deploy that capital elsewhere. If the market rallies but your specific stock doesn't, you've missed opportunities.

Mitigation: Ensure this position aligns with your overall portfolio allocation strategy. Don't overconcentrate in a single position just to employ this technique.

3. Assignment at Unfavorable Prices

You might get assigned at $1.50 while the stock is trading at $1.00, meaning you're immediately underwater on the new shares—even though your blended cost basis across all shares improves.

Mitigation: Remember that you collected premium upfront, which offsets this risk. Also, focus on the overall cost basis improvement, not just the immediate mark-to-market on the new shares.

4. Missing Strong Rallies

If the stock unexpectedly surges above your strike price before expiration, you don't get assigned. While you keep the premium, you missed the opportunity to own more shares at the lower effective cost before the rally.

Mitigation: This is actually a favorable outcome—you keep premium and your existing shares appreciate. You can always sell new puts after the rally settles.

When This Strategy Doesn't Make Sense

Fundamentally broken companies: Don't average down on stocks with deteriorating business models
Bankruptcy risk: If there's material risk of the company failing, no cost basis reduction will save the position
Minimal premium available: If puts are trading for just a few pennies, commissions may eat up the benefits
Portfolio concentration concerns: If you already have too much exposure to this stock or sector
Short-term cash needs: Don't tie up cash in put collateral if you might need it soon

                                Conservative Approach: This strategy works best when you were already
                                planning to buy more shares to average down. The cash-secured puts simply make that
                                purchase more profitable by collecting premium in the process. Don't use puts to acquire
                                shares you weren't already willing to own.
                            

Tracking This Strategy with MyATMM

One of the challenges with implementing cost basis reduction strategies is accurately tracking all the moving parts: original shares, put contracts, assignment costs, and premiums collected. This is where specialized tracking becomes essential.

Why Accurate Tracking Matters

In the CLOV example, there are multiple components to track:

400 existing shares at various purchase prices
200 shares in existing put contracts at $1.00 strike
300 shares in new put contracts at $1.50 strike
Previous premiums collected ($92)
New premium collected ($124)
Future covered call positions that will be opened

Tracking all these elements in a spreadsheet becomes complex and error-prone. Miss a single transaction or formula error, and your cost basis calculations become unreliable.

How MyATMM Handles Complex Positions

MyATMM automatically tracks:

True cost basis: Blended across all purchase prices and assignments
Cost basis with premium: Factoring in all collected credits from puts and calls
Proposed cost basis: Showing what your cost basis will become when active puts get assigned
Collateral requirements: Total capital committed to active put positions
Credits received: Comprehensive premium tracking across all option types

The platform provides both detailed position views and summary portfolio metrics, allowing you to see at a glance whether your cost basis reduction strategy is working as intended.

                                Proposed Cost Basis Feature: MyATMM shows you what your cost basis will
                                be if your active put contracts get assigned, helping you make informed decisions about
                                future covered call strike prices before the assignment actually happens.
                            

Using the Platform for This Strategy

When executing cost basis reduction through cash-secured puts:

Before the trade: Review your current cost basis and position summary
Execute the put sale: Sell the cash-secured puts through your broker
Log the transaction: Enter the put sale in MyATMM with strike, expiration, and premium details
Review proposed metrics: Check the proposed cost basis to see your future position status
After assignment: Platform automatically updates your shares and cost basis
Plan covered calls: Use the new lower cost basis to select optimal strike prices

The platform eliminates manual calculations and ensures every premium dollar is properly factored into your true cost basis—critical for making profitable trading decisions.

Key Takeaways: Strategic Cost Basis Management

Using cash-secured puts to lower cost basis on existing positions represents a sophisticated evolution of the standard wheel strategy. Instead of passively holding shares with an unfavorable cost basis, you proactively improve your position metrics while collecting immediate premium income.

Core Principles to Remember

Get paid to average down: If you're going to buy more shares to lower cost basis, use cash-secured puts to collect premium while doing it
Focus on covered call flexibility: The primary goal isn't just lowering cost basis—it's enabling more profitable covered call strike prices
Premium is immediate income: You receive the credit today, regardless of assignment outcome
Multiple positive outcomes exist: Assignment lowers your cost basis; expiration leaves you with pure premium profit
Only use on quality holdings: Don't average down on fundamentally flawed investments
Track everything accurately: Proper cost basis tracking ensures you make informed strike price decisions

Practical Implementation Strategy

To successfully implement this approach:

Identify positions where your cost basis significantly exceeds current market price
Confirm you still have long-term conviction in the stock
Calculate what cost basis you need to target more attractive covered call strikes
Sell cash-secured puts at strikes that will achieve that target cost basis
Collect premium immediately
If assigned, begin selling covered calls at the new, more profitable strike prices
If expired, keep the premium and repeat as needed

This strategy transforms a problematic high-cost-basis position into an income-generating opportunity. The $124 collected in this CLOV example is just the beginning—the real value comes from the ability to generate substantially higher covered call premiums every single week going forward thanks to the improved cost basis.

                                Long-Term Perspective: A one-time cash-secured put trade that lowers
                                your cost basis by $0.40 per share might generate 3-5x more weekly covered call premium
                                for months or years to come. The compounding effect of that increased income far exceeds
                                the initial premium collected from the puts.
                            

Risk Disclaimer

Options trading involves substantial risk and is not suitable for all investors. Selling cash-secured puts obligates you to purchase shares at the strike price regardless of how far the stock price may fall. Past performance does not guarantee future results.

This content is for educational purposes only and should not be considered financial advice. The strategies discussed require adequate capital, risk tolerance, and understanding of options mechanics. You can lose money trading options, including the entire premium collected if positions move against you.

Always consult with a qualified financial advisor before implementing any options trading strategy. Ensure you fully understand the risks, mechanics, tax implications, and capital requirements before selling cash-secured puts or covered calls.