The “Cash Drag” Myth: Why I Keep 20% Cash Uninvested

Efficiency experts will tell you cash sitting in your account is “dead money.” They’re wrong.

by Peter Pru aka Peter Prusinowski

I can already hear the efficiency crowd typing their objections.

“Cash drag kills returns.”

“Every dollar not invested is a dollar not working.”

“You’re leaving money on the table.”

I’ve heard it all. And I respectfully disagree.

In my options selling strategy, cash isn’t dead money. Cash is oxygen. Cash is optionality. Cash is what keeps you in the game when everyone else is panicking.

I intentionally keep around 20% of my portfolio in cash at all times. Not because I’m scared. Not because I don’t have ideas. But because I’ve learned — sometimes the hard way — that liquidity is a strategic advantage.

Let me explain why.

A Quick Disclaimer

Everything I’m sharing here is educational. This is how I approach my own portfolio management. It’s not financial advice, and it’s not a recommendation for how you should allocate your capital.

Options trading involves significant risk. You can lose money. Cash allocations depend on individual circumstances, risk tolerance, and financial goals. What works for me may not work for you.

Always do your own research and consider consulting a financial professional before making investment decisions.

Now, let’s get into it.

The “Cash Drag” Argument

The traditional argument against holding cash goes something like this:

The stock market has historically returned around 7–10% annually over the long term. Cash, even in a high-yield savings account, returns far less. Therefore, every dollar sitting in cash is “dragging” on your overall returns.

If you’re a pure buy-and-hold investor with a 30-year time horizon, there’s logic to this. Staying fully invested through market cycles has historically worked out — if you have the stomach for it and the time to wait.

But here’s the thing:

I’m not a pure buy-and-hold investor.

I’m an options seller. And in options selling, the game is different.

Why Cash Is Different For Options Sellers

When you sell cash-secured puts, your cash isn’t sitting idle. It’s serving a purpose — it’s the collateral backing your positions.

But here’s what most options sellers miss:

You don’t have to deploy all of your collateral all the time.

Just because you can sell puts with 100% of your cash doesn’t mean you should.

When I keep 20% of my portfolio in cash — truly uninvested, not backing any positions — I’m giving myself something most traders don’t have:

Room to breathe.

The Three Reasons I Hold Cash

Reason 1: Opportunity Readiness

Markets don’t offer great opportunities on a predictable schedule.

Sometimes premium is rich and setups are everywhere. Other times, volatility is low and everything looks overpriced.

And occasionally — maybe a few times a year — the market drops hard and suddenly there are incredible opportunities everywhere. Stocks you’ve been watching for months are finally at prices that make sense. Premium is elevated. Fear is high.

Those are the moments when having cash matters most.

If you’re fully deployed when opportunity strikes, you have three options:

1. Watch from the sidelines (frustrating)
2. Sell existing positions at a loss to free up capital (painful)
3. Use margin (dangerous)

None of those are good choices.

But if you’ve kept 20% in cash? You can act. You can deploy into the fear. You can take advantage of elevated premiums when everyone else is scrambling.

Cash is dry powder. And dry powder is only valuable if you actually have it when you need it.

Reason 2: Defense When Positions Go Against You

Not every trade works out. That’s reality.

Sometimes stocks drop. Sometimes you get assigned on a put and the stock keeps falling. Sometimes you need to roll a position to avoid a loss.

All of these situations can require additional capital.

If you’re fully deployed and a position goes against you, your options are limited. You might be forced to close at a loss because you don’t have the cash to roll or adjust.

But if you’ve kept cash in reserve? You have flexibility.

You can roll that put to a later expiration for a credit. You can sell a covered call on shares you got assigned at a strike that makes sense. You can weather the storm without being forced into bad decisions.

Cash gives you the ability to play defense.

And in options selling, defense is often more important than offense. Avoiding big losses matters more than maximizing every trade.

Reason 3: Psychological Stability

This one doesn’t show up in spreadsheets, but it’s real.

When you’re fully deployed — when every dollar is at risk — market drops feel personal. Every red day hits harder. Every pullback creates anxiety.

But when you’re holding cash in reserve, corrections feel different.

Instead of panic, there’s calm. Instead of “I’m losing everything,” there’s “Okay, let’s see if any opportunities open up.”

Cash changes your psychology. It gives you permission to be patient. It removes the desperation that leads to bad decisions.

I sleep better knowing I have dry powder. And good sleep leads to better trading decisions.

But What About The “Drag”?

Here’s where the traditional argument falls apart for options sellers:

Cash isn’t actually dead money anymore.

With modern brokerages offering money market sweeps and treasury funds yielding 4–5% (as of this writing — rates fluctuate), your cash is working even when it’s not deployed.

That 20% cash position? It’s earning interest.

Is it earning as much as a successful options trade? Probably not. But it’s not sitting at zero either.

And when you factor in the strategic value — the opportunity readiness, the defensive flexibility, the psychological stability — the “cost” of holding cash looks very different.

It’s not a drag. It’s an intentional allocation that serves a purpose.

How Cash Saved Me During The Last Correction

Let me share a real scenario from my own experience.

During a market pullback, stocks I had been watching for months suddenly dropped 15–20%. Premium on puts went through the roof. Fear was everywhere.

Traders who were fully deployed were stuck. They couldn’t take advantage of the elevated premiums because all their capital was tied up — often in positions that were now underwater.

But I had cash.

I was able to sell puts on quality stocks at strike prices I’d been dreaming about. Premium was elevated because fear was high. I got paid more for the same level of risk I was already comfortable with.

Did I time the exact bottom? No. Nobody does consistently.

But I was able to act when others couldn’t. And that made a meaningful difference in my results.

That’s the value of cash. Not in normal times — in abnormal times. In the moments when opportunity suddenly appears and most people can’t do anything about it.

The 20% Rule

So why 20%? Why not 10% or 30%?

Honestly, it’s somewhat arbitrary. It’s a number I’ve landed on through experience that balances opportunity cost with strategic flexibility.

Here’s how I think about it:

Too little cash (under 10%): You might as well be fully deployed. You don’t have enough to make a meaningful move when opportunity strikes.

Too much cash (over 30%): Now the opportunity cost starts to matter. You’re sitting on a third of your portfolio that could potentially be generating premium.

Around 20%: Enough to matter, not so much that you’re giving up significant income potential.

This isn’t a hard rule. It’s a guideline. Your number might be different based on your risk tolerance, account size, and strategy.

The point is to be intentional about it. Don’t just accidentally end up with cash because you haven’t found trades. Deliberately hold cash as a strategic allocation.

Common Objections

“But the market always goes up over time.”

Sure, over long periods. But in options selling, you’re not just worried about long-term direction. You’re worried about timing, about assignment, about having the flexibility to manage positions. Short-term volatility matters even if long-term trends are in your favor.

“I’ll just use margin if I need more capital.”

I’ve seen what margin does to people. It amplifies losses. It forces bad decisions. It removes control at the worst possible moments. I watched my father lose everything in 2008 because of a margin call. I don’t use margin. Period.

“Cash drag will hurt my returns.”

Maybe slightly in calm markets. But in volatile markets, having cash can dramatically improve your returns — both by avoiding forced selling and by enabling opportunistic buying. One well-timed deployment during a pullback can more than offset years of “cash drag.”

How To Implement This

If you’re running an options selling strategy and you’re currently fully deployed, here’s how I’d think about building a cash reserve:

Don’t sell existing positions at a loss to raise cash. That defeats the purpose.

As positions close profitably, don’t immediately redeploy all the capital. Let some of it stay in cash.

Set a target percentage and work toward it over time. Maybe it’s 10%. Maybe it’s 20%. Whatever feels right for your situation.

Make sure your cash is earning interest. Check your broker’s sweep options. There’s no reason to earn 0% when you could be earning 4–5%.

Resist the urge to deploy during calm markets just because the cash is “sitting there.” That’s the whole point — let it sit until you really need it.

Final Thoughts

The “cash drag” myth assumes that every dollar needs to be constantly working at maximum efficiency.

But in options selling, efficiency isn’t the only goal. Survival matters. Flexibility matters. Psychological stability matters.

Cash gives you all of those things.

It lets you act when others can’t. It lets you defend when positions go against you. It lets you sleep at night knowing you have reserves.

I keep 20% of my portfolio in cash — not because I’m afraid, but because I’m strategic.

The efficiency experts can keep telling me I’m leaving money on the table.

I’ll keep having dry powder when the table gets flipped over.

Want To Learn More?

If you’re interested in learning how I structure my options portfolio — including how I think about cash management, position sizing, and risk — I’m hosting a free workshop.

No hype. No income promises. Just education on the Ark Options Strategy and how I approach building potential income from the market.

**Click here to register for the free Ark Workshop →**

See you there.

— Pete

This article is for educational purposes only and is not financial advice. Options trading involves significant risk and is not suitable for all investors. You can lose money — potentially more than your initial investment. Cash allocation strategies depend on individual circumstances, risk tolerance, and financial goals. The percentages and approaches shared reflect my personal strategy and are not recommendations. Interest rates on cash and money market funds fluctuate and are not guaranteed. Always conduct your own research and consider consulting with a qualified financial professional before making investment decisions.