where to "put" cash?

There's an abundance of blogging today on cash-like investments in this low interest rate environment:  FDIC savings accounts, CDs, money market funds, brokerage cash accounts.  Even ETFs that invest in short duration bonds.  As I sell puts, then calls, I'm not interested in cash-like returns.  But if you're inclined to sell cash secured puts, here's an idea:

This afternoon, SPY, the S&P 500 ETF, traded at $306.57.  I looked at the option chain for the June 19, 2020 expiry.  The $306 puts showed a $6.32 Bid & the the $264 puts showed a $0.47 Bid.  Let's consider a $100,000 account, with all the money positioned in the account's core position to secure the selling of puts. With $100,000, I'm able to sell 3 of the $306 puts, or 3 of the $264 puts.

I sell puts rather aggressively.  Just a bit out-of-the-money.  I often don't mind an assignment...getting put to buy SPY at the strike price.  So I'm inclined to sell the $306 puts. 

• 3 puts require cash security in the core position of 300 X $306 = $91,800.  
• At the $6.32 Bid, I'd receive a premium of 300 X $6.32 = $1,896.  
• $1,896/$100,000 = 1.896% over 17 days until 6/19/20's expiration.  
• That's a 40.7% annualized premium yield.  

The core position of $100,000 + $1,896 also earns the modest interest rate provided by the core position's investment.  But I can hardly call this cash secured put investment cash-like.  There's a great chance of assignment.  More accurately, I call it a stock market investment & an aggressive one.

But the $264 puts are a different story. 

• 3 puts require cash security in the core position of 300 X $264 = $79,200.  
• At the $0.47 Bid, I'd receive a premium of 300 X $0.47 = $141.  
• $141/$100,000 = 14.1 basis points over 17 days until 6/19/20's expiration.  
• That's a 3.0% annualized premium yield.  Cash-like investors would die for 3% today.

With my choice of the $306 put, SPY needs to drop only 57 cents to get into assignment territory.  With the $264 put, SPY needs to drop over $42 to hit assignment territory.  With the $264 put, a much lower chance of assignment & a higher chance of what often feels like "free money."

Some put selling investors use these way out-of-the-money puts (like the $264s) to serve as a cash alternative.  I still call the $264 put a stock market investment, but a conservative one.

One beauty of selling puts, then calls is an investor's ability to select risk.