How to Sell Puts for Instant Cash
How to Sell Puts for “Instant Cash”
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.
But once you get the terms down, options don’t have to be stressful — especially when you use our put-selling strategy.
In fact, this is one of the most stable avenues for generating a steady stream of income.
If you still have questions, I suggest watching my Intro to Options video. In it, we provide a brief explanation of all the terms you’ll need to know to feel comfortable when making my trades.
Now, after you’re finished watching that, it’s time to take a look at why this is a superb income-generating strategy…
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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 pays 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. That’s the first rule every stock needs to meet before I recommend selling puts on it. I call it the “own-it” rule. Anytime I recommend a new position, I’ll outline how it meets the own-it rule.
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, 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 — forced to buy — the stock, we simply collect the premium and move on. If we are 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|
|Option Type:||Put Option|
|Action:||Sell to Open|
|Order Type:||Limit Order|
|Duration:||Good ‘Til Canceled|
|Limit Price:||$15 (Anything above $15 is great.)|
|Trade Deadline:||If your order is not filled in the next week, I’ll update you on the trade.|
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, don’t 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 Power Options video package.
In each of my new trade alerts, you will get an action to take (as illustrated above), plus what I refer to as my Triple-Check Method. I explain how every trade meets the three rules we follow to maintain our 92% win rate.
There are always great income opportunities in the market, so if you miss the first trade or two, no worries — another 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