Did you realize that you actually get paid to buy stocks at the price of your choosing?
Yes, that’s correct. Someone will pay you cash today for your promise to buy any stock you want at a cheaper price than where it is currently trading.
It’s simple. It’s real. And it’s totally legitimate.
For some reason, however, the old regime of the financial industry would have you think otherwise.
But do we really care what they think? They have led us astray for years, so why would we continue to want to listen to their archaic ideas and suppositions?
The only requirements for this technique is that you find a stock or ETF that you want to own, come up with a price you want to buy the underlying, place the trade and collect your income.
Yes, it is that simple.
Being a professional options trader for roughly 15 years, I have discovered that most options strategies are best within certain types of market environments. However, this strategy – known as a favorite among professionals – is best served in any market environment…bullish, bearish or neutral.
What strategy is it? Selling puts, or put option selling. The semantics don’t really matter.
Selling puts is the best way to attain the stock or ETF you have been eyeing for a much lower price than where it’s currently trading.
When a stock or ETF’s price is inflated most investors enter a limit-buy order for the underlying at a lower price. Yes, they sit and wait and wait and wait some more. In most cases this goes on for months with nothing happening other than lost opportunity costs. It has been shown that over 95% of all investors do it this way.
But by selling puts on a stock that you wish to hold in your portfolio you could be collecting income, thereby lowering the cost basis of your favorite stock even further.
Here’s how it works:
· When you sell a put, you have an obligation to buy the stock of your choice at the price you wanted when entering the trade.
· The individual taking the other side of the trade – the buyer of the put – pays you money today for your obligation to possibly buy that stock sometime in the future at the price you wanted.
Buying puts is a bearish strategy. When an investor makes the assumption that a stock or ETF will move lower over a specific timeframe he or she can either short the stock or buy a put.
This is where you, the put option seller, come in. Since you are bullish, you sell a put option and just wait until options expiration. If the underlying closes above your chosen price you get to keep the entire premium, or amount that you were given for selling the put. If the underlying closes below your chosen price (strike price) you will be put (assigned) the stock or ETF that you wanted.
Just think how much you could reduce your cost basis if you did this for months.
This is why professionals love selling puts as a strategy.
Next week I will go over in great detail how to sell puts on one of the most popular stocks in the market today.
Until then, check out the following article to read more on how I use the put-sell strategy to my advantage.
Please do not hesitate to email me at [email protected] with any questions that you might have.
Editor and Chief Options Strategist