Yield on reserve capital for cash-secured puts

Discussion in 'Options' started by trader13682, Dec 18, 2011.

  1. In a strategy involving writing cash-secured naked puts (deep OTM), there is typically a large amount of capital being held in reserve (over and above the maintenance capital required to maintain the option position), so that if assignment occurs, there is sufficient capital to purchase the underlying.

    I was wondering what is the best way to maximize the yield on this 'reserve capital'.

    Some high-level goals (in addition to maximizing yield) for investing this reserve capital would seem to be:
    1. Highly liquid (must be able to turn into cash if assignment occurs).
    2. Counter-correlated with the market (if the market crashes, thereby causing assignment of the UL on the puts, the reserve capital investment should maintain value or go up in value, but not down).

    What are some good ways to invest the reserve capital based on the goals above? One idea that came to mind was writing calls on SPY (since if market crashes, such calls should go down in value) with the reserve capital being the backstop, but that has its own associated risks (since SPY can be fairly volatile at times). Another idea is high quality corporate bonds/munis but those are not truly counter-correlated with the market (as seen in late 2008 when munis fell 20% during the panic selling).