The Bottom Line In the end, utilizing the sale of put options can be a very prudent way of generating additional portfolio income. Entire portfolio of stocks can also be protected using index puts. Please email inquiries quora. In the case of financial markets, an index is a hypothetical How Put Selling Works, Part 1. If you don't have that cash in your portfolio, your broker can force you to sell other stocks in order to buy this position.
Investing in Stocks Through Options. He asked a good question that made me realize that a lot more people are probably wondering the same thing. In essence, he asked how does selling puts work. The other side is what I do. She might be buying insurance for a stock she owns and will limit her losses if it does sellimg since she can sell it back to me at the then higher price that we agreed on.
If the put is sold with a strike below the current price it is said to be out-of-the-money OTM. Selling a put out of si money means the stock can decline in price some without the seller taking a sleling. If the put expires without being below the strike aka in-the-money or ITM I keep the entire premium and do not have to buy the stock. She will assign the stock to me, forcing me to buy and while getting her money back from the stock at the higher price.
She has made a wise move if the stock hy at that lower price and she has cut her losses or saved her profit. In this case, as a put seller, I have the decision menat make if I should cut my losses and sell the stock for a what is meant by selling a put option to sell, hold on and hope it rallies or hold the stock AND write a covered call on it thereby reducing my cost further. In this case she could make money on both sides, the option and the underlying stock. A put seller cannot be forced into buying the put back.
A put seller can only be forced to buy the stock. I have made a wise move neant I have the cash available to opton buying the stock and believe the stock will rally. If I believed the stock was doomed to fall more, I should have bought the sellihg back already, unless the stock fell faster than I could react. To read more about the common misperceptions and risks of selling puts, click here. Pingback by How Put Selling Works, Part 2 Comment by Alex Fotopoulos Thanks for the idea Pete!
I had fun writing it and even saw that the Wall Street Journal referenced this yesterday from their online edition. Pingback by Beginners Guide: How to Read an Options Table Pingback by Four Stages of a Successful Investor - Stage Four: Options Investors RSS feed for comments on this post. How Put Selling Works, Part 1. Pingback by How Put Selling Works, Part 2.
That reader would be me. Excellent post-puts everything in clearer perspective. Comment by Alex Fotopoulos. Thanks for the idea Pete! Pingback by Beginners Jual indikator forex yamaha fino How to Read an Options Table. Pingback by Four Stages of a Successful Investor what is meant by selling a put option to sell Stage Four: Options Investors.
RSS feed for comments on this post. Sorry, the comment form is closed at this time. Follow me on Twitter. Catch my VLOG on YouTube sellinv. I had a good exchange with a reader in the comments of a post from the end of July. This material is meant as entertainment and is only a view into how I invest bt own account, but not necessarily how you should invest your own funds.
Trade using your own research at opttion own risk. Other Popular Articles: - How to Read an Options Table. Stock and Option Trade Ideas.
Selling options for beginners: When to sell options // Selling put options explained, writing puts
An educational article about selling calls for income, of the stock being put to the option giving that other person the option to fill your sell. What does it mean to write a put option? implies that you're giving the buyer the right to sell to you at a certain price. So selling a put on the S&P for a. Two Ways to Sell Options. your proceeds of $2, from the sale of exercised stock and the $ premium you took in for selling the option.