Options have a reputation. Depending on who you ask, they're either a sophisticated tool used by professionals, or a fast way for inexperienced traders to lose money on bets they didn't fully understand. Both reputations are earned — it depends entirely on which option strategy you're talking about and how it's used.
This article isn't a comprehensive guide to options trading. It's an introduction to what options actually are, why they generate so much hype, and one specific, relatively conservative strategy that I personally use inside my own retirement account: selling cash-secured puts on stocks I'd want to own anyway, paired with selling covered calls once I own them.
What is an option, in plain language?
An option is a contract that gives someone the right — but not the obligation — to buy or sell a stock at a specific price, by a specific date. There are two basic types:
- A call option gives the buyer the right to buy a stock at a set price (the "strike price") before the option expires. People buy calls when they expect a stock to go up.
- A put option gives the buyer the right to sell a stock at a set price before it expires. People buy puts when they expect a stock to go down, or want to protect a position they already own.
Here's the part that matters most for this article: for every option buyer, there's an option seller on the other side of that contract. The buyer pays a fee (called a "premium") for the right described above. The seller collects that premium — and takes on the obligation if the buyer chooses to exercise their right.
Why all the hype?
Options get attention because they can multiply both gains and losses far beyond what the same money invested directly in a stock would do — this is called "leverage." A small move in a stock's price can mean a huge percentage gain (or loss) on an option tied to it. That volatility is exactly what makes options exciting to trade and exactly what makes them risky when used carelessly, especially by buying options and hoping for a big directional move.
Buying calls or puts can lose 100% of what you paid — fast
When you buy an option, you're paying a premium for a right that might expire worthless if the stock doesn't move the way you expected, in the time frame you needed. This is the riskier, more speculative side of options trading, and it's a meaningfully different strategy from the one described in the rest of this article.
The strategy I actually use: selling cash-secured puts
Instead of buying options and betting on a big move, I sell put options on stocks I'd genuinely be happy to own at a lower price. Here's how it works:
One option contract covers 100 shares, which is why I set aside $5,000 in cash — enough to buy 100 shares at $50 if the put gets exercised. This is what makes it a cash-secured put: I'm not borrowing money or taking on uncovered risk. I already have the cash sitting there, ready to do exactly what I said I'd do.
From here, one of two things happens by the option's expiration date:
"Either I get paid for waiting, or I get the stock I wanted at a better price than I would have paid outright. There isn't really a losing outcome — there's just a different version of getting what I wanted."
That's why this is my favorite way to acquire 100 shares of a stock inside my retirement account: I only sell puts on stocks I'm genuinely willing to own at the strike price, so even the "worse" outcome is one I was comfortable with from the start.
Why this can beat parking cash in a savings account
| Where the cash sits | What happens to it |
|---|---|
| Savings account | Earns maybe 0.4%–4% per year, depending on the bank, while you wait |
| Cash securing a put | Earns the option premium upfront, often equating to a higher annualized return — while still being available to buy the stock if assigned |
The cash isn't doing nothing while it waits to potentially buy the stock — it's earning the premium right away, which in many cases is a meaningfully better return than a typical savings account rate, especially on stocks with more volatility (and therefore higher premiums).
Once I own the shares: selling covered calls to lower my cost basis
If the put gets exercised and I end up owning the 100 shares, the strategy doesn't stop there. I can then sell a covered call — a call option against shares I already own.
Just like with the put, one of two things happens: either the stock stays below $52 and I keep the shares plus the premium (lowering my cost basis again), or the stock rises above $52 and my shares get "called away" — sold at $52, which is still a profit from my $47.90 effective cost basis. Either outcome is one I was fine with.
This is sometimes called "The Wheel" strategy
Sell a put. If assigned, own the stock. Sell a call against it. If called away, sell the stock at a profit and go back to selling puts. Each cycle generates premium income and either builds a position at a discount or locks in a gain — repeated over and over on stocks you're comfortable holding long-term.
If the stock crashes far below your strike, you still own it at a loss
Selling cash-secured puts is more conservative than buying options, but it isn't risk-free. If a stock drops dramatically below your strike price, you're still obligated to buy it at that strike — meaning you can end up holding shares worth significantly less than what you paid, just like buying the stock outright would have. This strategy works best on stocks you'd be comfortable owning through a downturn, not ones you're using purely to generate quick premium income. Options trading also requires your brokerage to approve you for an options trading level, and not all retirement account types or brokerages support every options strategy — confirm with your specific account before attempting this.
Why I do this inside a retirement account specifically
Premium income from selling puts and calls is taxable in a regular brokerage account. Inside a Traditional IRA, that income isn't taxed each time it's generated — it grows tax-deferred along with everything else in the account, the same as dividends or capital gains would. That makes this strategy a good fit for a retirement account specifically, on top of the cliff-protecting benefits a Traditional IRA already provides through your contributions.
See how a Traditional IRA fits your strategy
Whatever your investing style — index funds, individual stocks, or option strategies like this one — a Traditional IRA can hold it while protecting your MAGI-based benefits.
Try the calculator →Most major brokerages support options inside an IRA. See our recommended brokerages →