Dear Tiger Friends,
Recently I have written an article on how to sell a option put contract to earn weekly or monthly income and I have received many queries. Allow me to explain further to this. Selling a put option is apowerful strategy used by many and famous Warren Buffett. Before you consider selling a naked put options you have to understand what’s your strategy objective . 1) Do you want to own 100 shares or 2) just want collect premium for income. Either way it is important you must have the money ready should your put contract exercised. Once you understand your objective you can then decide if you want to own the 100 shares or roll over your option again to collect premiums.
My suggestion to those who are new and have not traded a naked put option is to trade on low dollar value growth stock example: NIO (100 shares=USD4000) From there you will gain experience in selling puts, option being exercised and sellinga covered call.
I’m a Tesla bulls and I do want to own more Tesla shares at cheaper price. While doing so when itis trading sideways or trading higher or lower I want to collect premiums. I do hope my put options are exercised so that I’m assigned 100 shares. At what strike price you will have calculate your own ROI, delta & IV. Another strategy comes in when you don’t want your all your Tesla shares to go idle in your account. For example if you have 300 shares of Tesla, sell 1 covered call option out of the money earning premium. Even if you’re assigned to sell your 100 Tesla shares, you have collected premium and sold at higher price. Repeat the same cycle to collect premium and buying the stock you like. ?
The downside to this strategy is when the stock price goes higher and higher you lose out on your capital gains when you physically own the stocks. To beat this system is to play on both sides. When you have bought enough of a particular stocks, have some money left to trade options for side income.
I hope the above helps in giving you an idea and knowledge to grow your wealth.
Invest safe and be happy ?
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