An option trading strategy whereby a put option is sold, with the proceeds (the aggregate exercise price) being invested in the money market (usually through an escrow account). This strategy aims to ensure availability of enough cash in the hands of an option writer in case the option is exercised. Interest earned on the deposited cash in addition to the premium received from selling the put would be used to meet the seller’s obligation towards the option holder. It is worth noting here that fiduciary puts and covered calls have analogous profit and loss characteristics. However, commission costs are lower with fiduciary puts.
January 21, 2025
