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The smart method here is to sell one or more cash-secured put options to take on the obligation to potentially buy the shares at a certain price before a certain date, and get paid money up front for taking on that obligation.
A put option is a contract that gives its buyer the right to sell a stock at a predetermined price (strike price) within a certain period (on or before the contract’s expiration date). The buyer pays a premium upfront to get this contract.
The main reason people get into trouble selling Put options is because they sell more Put options than their account can handle. And they do not plan for the worst-case scenario and take calculated risk.
Put selling means entering into a contract with a put buyer in which the buyer pays you a small amount of money (a “premium”) in exchange for the right, but not the obligation, to sell an...
Selling an equity put creates an obligation to purchase the underlying stock. The profit potential is limited to the premium received, but the risk is substantial.
Selling put options can help generate income and/or help you acquire stock at an attractive price, but there are several caveats to keep in mind. By understanding some of the most common mistakes, you can avoid costly errors and ensure you’re meeting your financial goals.
Selling put options has a higher potential for returns than many stock investments. But, it’s important to understand the obligations you have as the put seller as well as the benefits. We’re going to explain the seller’s obligation, along with a basic example to help you understand.