For option traders aiming to achieve long-term success and sustainable returns, selling puts is a widely regarded and intelligent strategy. When compared to selling calls, selling puts generally presents a more limited maximum loss, making it a preferable choice for risk-conscious options investors.
Understanding Put Selling
Selling puts involves agreeing to buy an underlying asset, such as stocks or ETFs, at a predetermined price before a specific date. This agreement entails that the put buyer will compensate you, the seller, with a premium for taking on the potential obligation to purchase the shares. As long as the market price remains above this predetermined price at the expiration date, you retain the premium without any further obligation. However, if the market price falls below this so-called Strike Price, you are then required to purchase the shares at the strike price, though you still keep the premium. This arrangement can be particularly advantageous if you are already considering purchasing the stock at a price below its current market value.
For example, consider if NVIDIA (NVDA) is trading at $1150, but you are interested in buying at $1000. Instead of making an immediate purchase, you could sell a put option with a $1000 strike price. By doing this, you earn a premium once the order is executed. This strategy has two primary risks:
Opportunity Loss: If NVDA’s price continues to rise, you may miss out on acquiring the stock in the short term.
Compulsory Purchase: If NVDA’s price drops below $1000, you will be obligated to buy it at the agreed strike price, regardless of the lower market price.
Choosing the Right Contract
Navigating through various strike prices and expiration dates can seem daunting. This is where tools like ‘Strike & Save’ come into play, simplifying the selection process by allowing you to compare contracts based on the estimated returns* (expressed as APY—Annual Percentage Yield) and the premiums offered.
Visualize Your Options with Strike & Save
By using ‘Strike & Save’, available in the latest Tiger Trade app update (v9.1.8), traders can efficiently screen and select the most suitable contracts. This tool is accessible directly from the homepage, providing a user-friendly interface that displays both the premiums you can earn and the estimated APY, thus aiding in making informed decisions quickly.
Upgrade Your Trading Experience
Upgrade to version 9.1.8 today, and access the innovative ‘Strike & Save’ feature to optimize your trading strategy. This tool not only streamlines your trading process but also enhances your decision-making with comprehensive analytics and real-time data.
Embrace Strategic Trading with Confidence
By understanding and utilizing the strategy of selling puts, traders can enhance their portfolio’s performance while managing risk effectively. Whether you’re looking to capitalize on specific market conditions or aiming to expand your investment horizon, selling puts offers a strategic avenue worth considering.
Disclaimer：Investment involves risk. This is not financial advice. Option trading is highly speculative and is not suitable for all investors due to the risks involved. This advertisement has not been reviewed by the Monetary Authority of Singapore.
Comments