News Sell PUTS to enter a stock position.

Sell PUTS to enter a stock position.

-

Sell PUTS to enter a stock position.

By selling a PUT short, you are in effect, selling a long put to someone else.
Think of selling puts the same way you would think of selling insurance.

Lets go over some assumptions.

The stock is trading at 20 dollars a share.
You sell the 15 strike put.
You sell it for 3 dollars.
It has 30 days to go before it expires.

Or in layman’s terms if you prefer.

You wish to purchase XYZ stock at 15 dollars a share- however it is currently selling at 20. By selling the 15 strike put, you have just obligated yourself to purchase the stock if it falls to 15 dollars or less before it expires in 30 days.

On the opposite side of the trade:
Someone that either owns 100 shares of that same stock, or someone that is incredibly bearish has taken a bet against the stock. They believe that the stock might fall to 15 or less, and they are willing to pay you a 300 dollar premium for the insurance you just sold them in the form of a PUT.

If the stock does not fall below 15 dollars a share within 30 days, the PUT will expire worthless, and you will pocket the premium as profit.

At this point, if you still wish to own the stock at 15 dollars a share- you can enter in the same exact trade. In fact, you can do this every single month to create something that is akin to a passive revenue stream.

Always remember. If the stock does indeed go down to 15 or less before expiration, you are required to purchase the stock. Always keep the cash in your brokerage account in order to purchase the stock if it is put to you.

In a bearish market, when volitiity is high, you call sell insurance (PUTS) for rich premiums.
The alternative to doing this is to set a limit order and patiently wait for the stock price to hit you target price.
By selling PUTS you can earn cash while you wait for the stock to hit your entry price point.

Sell PUTS to enter a stock position.
General Contributor
Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.

Latest news

Japanese Owl Meaning and Symbolism

If you're wondering about the Japanese owl meaning and symbolism in Asian cultures, the Owl, along with Maneki Neko...

What Are the Signs of Depression in Women

Gender and depression have long been the scope of research in the field of emotional disorders; most authors believe...

Top 7 Superfoods for Men to Stay Young

Superfoods are generally regarded as targeted foods that provide the maximum nutritional benefit - thus these foods are nutritionally-dense...

Best Brain foods for Kids – Boost Brain Power and Keep Sharp

A child's brain is developing rapidly and if you want them to improve their performance in school and their...

7 of the Best Brain Foods for Studying

The foods that you eat can improve the functioning of your brain. Just like drugs, foods have amino acids,...

B12 Shots for Dogs – 10 Key Benefits

The end of 2010, my little dog -- a 7-pound Papillon -- became very stressed after a flood in...

Must read

The Benefits of LED Light Bulbs

LED light bulbs have traditionally taken last place...

What is Stress

Exactly what is stress? Stress is...
- Advertisement -

You might also likeRELATED
Recommended to you