I'm Selling Puts on Microsoft and Just Buying Alibaba — Two Cases That Show When Cash-Secured Puts Actually Work

When the price I want to pay sits below where a stock trades, I don't just wait — I get paid to wait. But this strategy doesn't work everywhere. Microsoft and Alibaba, side by side, show both the setup that makes it work and the setup where it quietly hurts you.

Cash-secured puts in thirty seconds

When I sell a put, here's what I'm saying in plain English: I want to own this stock, but I want to own it cheaper than it's trading today. So I pick a price I'd be genuinely happy paying. That's the strike.

While I wait to see whether it gets there, the market pays me money — just for making that commitment.

Two outcomes. Either the stock falls below my strike and I buy it at the price I wanted, or it doesn't and I keep the premium without ever owning shares. Either way works for me. The whole thing rests on one non-negotiable condition: you have to genuinely want to own the company at that strike, today.

Case A — Microsoft: exactly the right setup

Start with why I want this company at all.

Market cap is roughly $3 trillion against an enterprise value of about $3.17 trillion, so call it $200 billion of net debt. That sounds like a lot until you see that they generated $73 billion in free cash flow last year and $125 billion in net income. At that cash generation, the debt is a rounding error. I like businesses that will still be here in twenty years, and this clears that bar easily.

What I like even more is the direction of the margin. Net margin averaged 34% over the last ten years, 36.7% over the last five, and came in near 40% last year. It keeps climbing. Five-year return on capital is 21.74%. It's hard to argue this isn't a top-quality business.

And here's the part that matters. The stock is down 17.5% year to date. Over the same stretch the NASDAQ is up seven or eight percent. That's roughly 25 percentage points of underperformance against the index. While semiconductors have gone vertical, people are ignoring software businesses.

Analyst estimates aren't discouraging either: earnings per share going from $17 to $40 over the next seven years — better than 10% annually — with revenue more than doubling in the same window.

My calculated value is about $370 per share. The stock is at $400. It's a company I want, priced $30 too high.

So I open the options chain. August 28 expiry, roughly a month out, $370 strike put. Someone will pay me $7.70 per share.

Run the math: $7.70 against $370 is about 2.08%. Two percent in a month annualizes to around 25%.

If the stock never breaks $370, I keep the $7.70 and I've earned about 2% on cash for a month of waiting on Microsoft. If it does break $370, I take the shares and still keep the premium — an effective cost basis of $362.30, below my own estimate of fair value.

Case B — Alibaba: the setup where you skip the strategy

Alibaba is a different situation.

The stock is at $116, and even my most conservative scenario values it at $150. My base case is $290. In other words, this stock is already below the price I want to pay.

I ran the put math anyway. September 18 expiry, roughly two months out, $100 strike. The premium is $1.93 per share, which annualizes to 13.8% on the cash I'd set aside.

On its own that's fine. Worst case I earn 13.8% annualized; best case I get shares at $100 minus the $1.93, so about $98.07.

But look at what has to happen. For that contract to fill, the stock has to fall from $116 to under $100 by September 18 — a drop of more than 14%. That's unlikely, and precisely because it's unlikely, the premium is thin.

So I'd be standing in front of a stock already trading below the price I want, betting it gets even cheaper, collecting 13.8% annualized to wait. And if it runs up instead, I own none of it.

My conclusion is simple. When it already makes sense at the current price, I might as well just buy some.

The two cases side by side

Item	Microsoft	Alibaba
Current price	$400	$116
My calculated value	$370	$150 (bear) / $290 (base)
Price vs value	Above value	Below even the bear case
Expiry	Aug 28 (~1 month)	Sep 18 (~2 months)
Strike	$370	$100
Premium	$7.70	$1.93
Annualized return	~25%	~13.8%
Cost basis if assigned	$362.30	$98.07
My choice	Sell the put	Just buy shares

Put the columns next to each other and the rule falls out.

A cash-secured put works best when a great company is sitting slightly above your target price. Microsoft is exactly there — 8% above my value, and the premium covers that gap while I wait.

Sell puts on a stock that's already below your target and the strategy stops helping you buy and starts preventing you from buying. It converts a position you should simply take into a probability game you probably lose.

I've written separately on the mechanics of cash-secured puts and on the get-paid-to-wait framing if you want the fuller version.

Where this strategy breaks

The hard part isn't the math. It's the emotion.

Back to Microsoft. Say the stock is at $340 on expiration day. I have to take shares at $370 — thirty dollars above the market. This is where people fall apart.

Look at it coldly, though. If I'd simply bought at $400 today, I'd be down $60 at $340. Having sold the put, my basis is $362.30, so I'm down $22.30. Both are losses; one is meaningfully smaller. That $7.70 premium is mine in every scenario.

Which is why the rule I repeat to people is this: if you wouldn't want to own the company at that price today, don't sell the put at that price. That single rule removes most of the risk in this strategy.

There is a real cost, and I won't pretend otherwise. If the stock runs straight up through expiration, I collect the premium and miss the entire move. Microsoft at $450 in a month means I made $7.70 and left $50 on the table. That's structural, not a mistake — and if you can't live with it, don't run the strategy.

Finally, the cash isn't optional. One contract at a $370 strike means $37,000 sitting in the account. Selling without it is a different, much riskier trade.

FAQ

Q: A 25% annualized premium sounds too good. What's the catch? A: The word annualized is doing heavy lifting. What you actually receive is 2% for one month, and there's no guarantee comparable setups repeat all year. Also, premium fattens with volatility — an unusually rich premium often means the market expects a large move in that name.

Q: What do I do if the stock oscillates around the strike? A: Leave it until expiration. Rolling or closing mid-flight drags you back into the exact problem this strategy exists to solve, which is emotional trading. If you decided at the outset that the strike was a price you'd happily pay, either outcome should be acceptable.

Q: Does this work on dividend stocks? A: Mechanically yes, but factor in that you collect no dividends while you wait. Unless the premium yield clearly exceeds the dividend yield over that window, you're better off owning the shares and taking the dividend.

Q: Is this a reasonable strategy for a beginner? A: The options mechanics aren't hard, but the prerequisite is. You need to be able to value the business yourself, because that's what sets the strike. The moment you pick a strike because the premium looks fat rather than because you've done the valuation, this stops being a disciplined entry tool and becomes plain speculation.