This is the 2nd post in theÂ put option series. If you haven’t read the 1st one, you should because it will make a heck of a lot more sense. we are getting a bit advance here. understand this and you will be 90% better than all retail stock investors. Most of them don’t even know what the hell is the put or a call.Â
Put Profit graph
In the 1st series, i discussed about buying the put to protect your portfolio. it works just like buying house insurance. There is no different in term of concept. Stock go up, your put expire, but you still make money. Stock go down, you can exercise your put and get your money back. Now you might wonder, you are buy the put, but who is selling it to you? Have you ever dream to be on the other side, not buying insurance but selling insurance? You can sure sell the put, as long as you have enough money to buy back the stock in case it got exercise. now stop reading this now and google “cash covered put” and “put writer”. these are the two key words in today discussion
Warren buffet has made millions of dollar selling put on the stock that he like to own, and he get pay for being wrong. Maybe we all should give this strategy a try too.
The key point on this strategy is to sell put on the stock that you like to own. For example, This week, i like to own PSX. It’s a very good downstream oil and gas company located right in my home town, Houston Texas. But the price is $75 a share and i don’t want to pay that price. instead of buying the stock out right, i decided to sell 1 put contract of PSX at 69.5 for 30 bucks Basically, that is me making a commitment to buy back 100 shares of PSX at the price of 69.5 if the stock price fall below or at that level. i hope that the stock will fall back to 69.5 so that i can buy it. But what happen when the stock keep rolling up or even side way? The option expire and i keep all the premium!
Did you just see that? I just get paid for being wrong. now who doesn’t like that? If i am right, i get to own the stock at $69.5 and i will have a couple exit strategy. I either buy back the put contract right away and accept the loss, or keep the stock for long term, or buy the stock and write a deep in the money call option to hopefully get rid of it in a week and still make money.
Get skilled at this tool and you just create yourself a stream of passive income from the stock market
My weekly option for PSX expire and i keep the premium below: (picture coming soon)
My weekly option for XLE expire and i kept the premium below: (picture coming soon)
So far i’m down $466.47 in my portfolio If it wasn’t for the put option, I would be down more than $1000 already.
Now an real option trader would look at this article probably laugh at me, butÂ i feel that it is my obligation to get the knowledge of option in the stock market out to the population of retail investors. I am very surprised that there are many soÂ call stock investors out there but when you ask them about option, they are like..wth is that?
In life, i love to have option
In Real Estate, I love to have option and multiple exit strategy. I love to control the house with a contract. Tell me a single person who doesn’t like option in real estate
In Stock, I would love to do the same. I would love to have Option and multiple exit strategy, I love to control 100 stocks with a contract, too. you can do it easily with put and call contract.
Does that make sense to you guys? I hope it does, if not, i’m sorry because i am still no expert yet, google is your best friend, but at least you got the idea. I hope that i woke you up at least. Stop failing asleep at your financial steering wheel, wake up!
Option is a powerful word in Life, in Real Estate, and in Stock
Disclaimer:Â I do not recommend you to do anything. Do your own research and seek professional opinion.Â the article above is for educational purpose only
Recommended book for reading: