Did you realize that you could actually be 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 should we continue 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 that you’re willing to pay, 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.
Buy Stocks at the Price YOU want…the Strategy
So what is this strategy?
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. In fact, it’s been shown that more than 95% of all investors do it this way.
But by selling puts on a stock you want to own, you can collect income, thereby lowering the cost basis of the stock even further.
Here’s how it works:
- Buying a put option gives you the right to sell 100 shares of a particular sock at a defined price (the strike price) on or before a specified date (the expiration date).
- On the other hand, selling a put option means that you are obligated to buy the 100 shares at the strike price if the buyer so chooses prior to the expiration date. This, of course, won’t happen until the stock price drops below the strike price.
- The buyer of the put pays you money today for your obligation to possibly buy that stock sometime in the future at the lower price you’ve chosen.
Buying puts is a bearish strategy. When an investor believes a stock or ETF will move lower over a specific time frame, they can either short the stock or buy a put.
This is where you – the put option seller – come in. Since you want to own the shares (albeit at a lower price), you sell a put option and just wait until options expiration.
If the underlying closes above your chosen price (the strike price), the put expires worthless and you get to keep the entire premium collected at the outset.
If the underlying closes below the strike price, you will be put (assigned) the stock or ETF that you wanted. In other words, you will be obligated to buy the shares at the strike price. You now own the stock you wanted … at the lower price you were willing to pay.
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.
Everyone knows you’re supposed to buy low and sell high. This advice is so common and so basic. And yet, almost no one talks about how to buy low – let alone how to sell high.
Next week, I will be going over in detail how to properly sell puts on a few of the safest blue-chip dividend-paying stocks. Stay tuned!
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