Sell Put Options and Trade Like Warren Buffett
- Billionaire Warren Buffett uses a tool that creates a win-win scenario.
- Since 2012, Chad Shoop’s readers have used this little-known strategy — and 95% of their trades were winners.
- For a limited time, we’re giving you the chance to emulate Buffett by following one simple rule.
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
Those are Warren Buffett’s investing rules.
They are simple to understand, yet extremely challenging for short-term trading.
Some losses are inevitable.
But I believe in Warren Buffett’s rules for investing. It’s why I implement one of his favorite strategies on a shorter time frame.
Buffett uses tools that Main Street investors haven’t heard of. One is the only one I know that creates a win-win scenario.
And I’m sharing it with you today. This approach that will change the way you look at investing forever.
Plus, it’s 95% guaranteed to result in winning trades…
Warren Buffett’s Success: Selling Put Options
Watch my video below to learn more about Buffett’s strategy.
The strategy I’m talking about is selling put options, and Buffett has perfected the approach.
Although he doesn’t like using options in general, selling put options is a favorite strategy of his.
He’s collected $5 billion in income by selling put options over decades.
Here are some examples of his trades:
- He sold 50,000 put options on Coca-Cola Co. in 1993.
- He sold 2.2 million shares of put options on Burlington Northern Santa Fe LLC in 2008.
Buffett made most of his wealth in one industry: insurance. He understands it, and it’s been his target since he became a wealthy businessman.
He acquired his first insurance company in 1967. He bought Geico in 1996 and General Re Corp. in 1998.
And after decades of acquisitions, Buffett said Berkshire Hathaway wouldn’t have been half of what it is today without National Indemnity Co. — the company he purchased in 1967.
You see, once you understand how selling put options works, it’s easy to see why it’s Warren Buffett’s favorite way to trade options.
And the reason Buffett likes these companies so much is because of the business model.
In a 2010 annual shareholder letter, Buffett explained his view:
Insurers receive premiums upfront and pay claims later. … This collect-now, pay-later model leaves us holding large sums — money we call “float” — that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit.
Maybe that’s why Buffett likes selling put options — it’s like selling insurance.
When you buy a put option, you are buying insurance on a stock. The purpose is to limit your downside risk in a stock.
And by selling a put option, you are selling the insurance. You collect an up-front payment because you may have to purchase the stock at one point.
In other words, you get paid up front for a future obligation.
This approach explains why Buffett has had tremendous success in his trading career.
I’ve had similar success with selling put options. Over the last seven years, my trades have had a 95% win rate.
And today, I’m sharing this strategy with you.
Pure Income: Make Quick Gains
Selling put options has allowed me to live up to Warren Buffett’s famous rule: Never lose money.
Losses still happen on occasion, but 95 out of 100 trades resulting in wins is a great track record for short-term traders.
Selling put options is all about finding great companies: Think Coca-Cola and General Electric Co. back in the ’90s.
As we find these companies, we sell put options on them, collect income and possibly end up owning shares of the stock.
Those are the only two outcomes when you sell a put option:
- You keep the income.
- You keep the income and own the stock.
To make sure selling put options is a win-win scenario, I follow one rule: Only sell put options on a stock you want to own.
Because if you want to buy the stock today, why not get paid to possibly do so in the future?
This win-win situation is why Warren Buffett has employed this strategy over the years.
And it’s how I’ve used my Pure Income premium service to achieve a 95% win rate for my subscribers.
One of my favorite things about this service is that it isn’t a high-risk, speculative strategy. I designed it with safety as a priority.
Click here to learn more about how you can begin trading like Warren Buffett.
Chad Shoop, CMT
Editor, Pure Income
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