How to Sell Puts for Instant Cash
How to Sell Puts for Instant Cash
|Income Accelerator Videos|
|Video: Options Tutorial|
Today, we’re going to cover one of the key components of my successful income strategy: selling put options.
I know options have scared off more than a few traders because of the complicated vocabulary and supposed risk.
In fact, this is one of the most stable avenues for generating a steady stream of income.
So, if you haven’t done so yet, I suggest watching my Intro to Options video. In it, we provide a brief explanation of all the terms you’ll need to know. It’ll be sure to make you more comfortable when making my trades.
Now, after you’re done watching that, it’s time to take a look at why this is a superb income-generating strategy
Collect Quick Income
Let’s say Microsoft is getting beaten up during a market downturn, but we believe the company is stable enough to bounce back. Not only that, but it has a significant dividend we want to start collecting.
That’s when we look to sell puts on the company something I’ll often refer to as a short put position.
Now, by selling puts (our bet that an underlying stock will rise), our only risk is ending up with shares of the stock which is fine by me, since I only trade fundamentally sound stocks with a decent yield that I’d want to own anyway.
Since that is our risk, your broker will ask that you tie up some of your capital as part of the option trade, but more on that below (see Capital Requirements chart).
See, when we sell a put option contract, we have the obligation to buy the stock at an agreed-upon price if the stock falls by a certain amount by a certain date.
We instantly get paid a premium for agreeing to this.
If we don’t get put the stock, we simply collect the premium and move on. If we do get put the stock, well, now we own shares of a solid, dividend-paying company that we already wanted to own.
Let’s go back to our Microsoft trade. Here’s the action we’d want to take:
Example only: Action to take: Set a Good Til Canceled limit order to sell to open the Microsoft (Nasdaq: MSFT) September 2015 $40 put option (MSFT150920P00040000) at $1.60.
This is the basic format I will send you whenever I issue an alert. All of the essential trade details are here. So if you’re speaking with your broker, this is the script.
If you’re doing it yourself online, though, dont worry about the mechanics: I’ve put together a quick video showing an example of how you can make this type of trade.
To watch me walk through the steps, please view the put-selling tutorial in your Income Accelerator video package.
In each of my alerts, you will get an action to take (as illustrated above), plus all the fundamental analysis you need to understand why I’m recommending this trade.
I also include the graph below to demonstrate how much cash you can collect, depending on the amount of capital you want to tie up. (This is only for a resource; there are various amounts of contracts you can sell.)
This chart is based on the sample trade recommendation above. So if you sold one of those contracts on Microsoft, you collected $1.60 per share, or $160 per contract since one options contract represents 100 shares.
This chart also illustrates the amount of capital youll be required to put forth for each type of account a cash-secured account or a margin account.
To learn more about those two accounts, remember to take a moment to look through the trading manual here.
I know that this is a lot of information to take in, but it’s also why I made sure we are giving you a month for free. This allows you to take your time and learn the system without having to rush and make a trade.
Dont worry; there are always great income opportunities in the market, so if you miss the first trade or two, no worries another income opportunity is just around the corner.
That’s all for today, but remember to keep an eye on your inbox tomorrow, I’ll send you another email that explains more of the income-generating tactics in Pure Income.
Editor, Pure Income