Do you realize that you can 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 a stock you want at a cheaper price than where it is currently trading. It’s simple. It’s real. And it’s totally legitimate. And if you are a serious investor . . . it’s a necessity.
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?
The only requirements for this strategy is that you find a stock 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.
As 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 options professionals – works well in any market environment: bullish, bearish or neutral. So what is the strategy to generate income without owning shares? Selling puts, or put option selling. The semantics don’t really matter.
Selling puts is the best way to obtain the stock you have been eyeing for a much lower price than where it’s currently trading.
When a stock price is inflated, most investors enter a limit order to buy the asset 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 99% 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 the stock even further. We’ve been doing just that in our High Yield Trader portfolio for big gains. I’ll get to that in a second.
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.
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 stock 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 asset closes below the strike price, you will be put (assigned) the stock 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. 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.
Here’s how selling puts works – and we’ve used this strategy to collect nearly 29% in income on a stock that has only gained 11.6% over the same timeframe.
Back in June 2013, shortly after we introduced High Yield Trader to the public, Microsoft (Nasdaq: MSFT) was trading at $34.27. At the time, the stock was outside of what we wanted to pay. We wanted to own 100 shares of the shareholder-friendly, blue-chip, dividend-paying stock at $31 a share for a total cost of $3,100.
Under normal circumstances, while we waited to hopefully get in at $31, our capital would sit idly on the sidelines making next to nothing. But if we sold puts at the strike price ($31 in this case) of our choosing, we get paid while we wait.
So we did just that. We sold a put option with a strike price of $31 that expired in one month for $0.30, or $30 per contract (one option contract = 100 shares), for a 4.38% return for roughly 30 days. We’ve done a similar transaction five additional times over the past nine months for a total return of 28.9%. I’ve done the same thing in Facebook (NYSE: FB), Wells Fargo (NYSE: WFC), Gold Miners (NYSE: GDX) and Marvel (NYSE: MVL) for returns of 34.2%, 16.9%, 41.0% and 16.3%, respectively….all in under nine months.
And we will continue to do this into perpetuity, assuming that the stock price remains above our strike price. Of course, if we end up buying the shares at the strike price, we own the stock at our stated price, which is what we wanted in the first place.
This is why professionals prefer to sell puts. They know if done correctly, the strategy has the potential to own a stock for next to nothing.
Please, if you have any questions on how to generate income by selling puts, do not hesitate to email me. Once you learn how simple and powerful the strategy is you will never bother buying a stock or ETF in the traditional manner again. I will be discussing various aspects of how I sell puts for income over the next few weeks. Stay tuned!
My Gameplan for the Year Ahead — Earn $1,200 a Month
If you missed Andy Crowder’s latest options webinar… don’t worry. We’ve uploaded a full, on-demand recording of the event on our site. During this video, you’ll discover exactly how he’s planning to make consistent profits in 2014, no matter which direction the market moves. Including, free action-specific trades you can execute immediately — gains you can earn in as little as 15 to 28 days! You’ll also get his entire presentation, including the lively Q&A session. Options videos and courses can run as high as $999, but this 60-minute presentation is completely FREE. Click here to watch this video now.