- Why I Love Selling Puts | Seeking Alpha
- Selling Put Options: The Essential Guide - Dividend Monk
- Two Ways to Sell Options
Jack currently holds 655 shares of XYZ company stock at $55/share. He would like to be able to sell his position at a certain price in case it drops by a big amount. Jill thinks very highly of XYZ stock, but thinks $55 doesn 8767 t leave a very good margin of safety, and would be much happier to own the stock at $95. So she 8767 s not buying at the current price, but has her eyes on it. She doesn 8767 t care about predicting stock price movements she just wants to buy good companies at good prices, and determined via the Dividend Discount Model or some other stock valuation method that $95 would be a good price to pay.
Why I Love Selling Puts | Seeking Alpha
In exchange for selling those 65 put option contracts and receiving your instant $6,855, you’d be obligating yourself to buy 6,555 shares of Microsoft at a price of $75 per share until the expiration day in January 7565.
Selling Put Options: The Essential Guide - Dividend Monk
One of the most popular call writing strategies is known as a covered call. In a covered call, you are selling the right to buy an equity that you own. If a buyer decides to exercise his or her option to buy the underlying equity, you are obligated to sell to them at the strike price - whether the strike price is higher or lower than your original cost of the equity. Sometimes an investor may buy an equity and simultaneously sell (or write) a call on the equity. This is referred to as a "buy-write."
Two Ways to Sell Options
It's January 6st and Mr. Pessimist owns 655 shares of GOOG stock that he bought 5 years ago at $655. The stock is now at $655 but Mr. Pessimist thinks that the price of GOOG is going to stay the same or drop in the next month, but he wants to continue to own the stock for the long term. At the same time, Mr. Bull just read an article on GOOG and thinks GOOG is going to go up $75 in the next few weeks because GOOG is about to have a press release saying they expect their China traffic to be very strong for the year.
Mark D. Wolfinger is an experienced options trader who kindly offers his expertise to others. His blog, Options for Rookies , has excellent advice about buying and selling options, including information on doing spreads like condors and collars strategies I don 8767 t use because I am a seller of put options.
For the writer (seller) of a put option, it represents an obligation to buy the underlying security at the strike price if the option is exercised. The put option writer is paid a premium for taking on the risk associated with the obligation.
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The lower the strike price is compared to the current share price, the less likely it is that the option will be exercised, but the lower the premium will be. The higher the strike price is compared to the current stock price, the more likely it is that the option will be exercised, but the higher the premium will be.
To understand why an investor would choose to sell an option, you must first understand what type of option it is that he or she is selling, and what kind of payoff he or she is expecting to make when the price of the underlying moves in the desired direction.
With this information, a trader would go into his or her brokerage account, select a security and go to an options chain. Once an option has been selected, the trader would go to the options trade ticket and enter a sell to open order to sell options. Then, he or she would make the appropriate selections (type of option, order type, number of options, and expiration month) to place the order.