[Winning Trades] Selling Puts Like Buffett? A Tiger Made $5K on Microsoft
Want to buy the dip but worried the stock could fall further? Some Tiger traders have been selling puts, collecting a premium while committing to buy shares at a price they’re comfortable with. One trader reported a US$5,038 profit on Microsoft. Others shared gains on Micron
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Congrats to @SimonTan91 , who made US$5073 by selling $Micron Technology(MU)$ put options.
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Congrats to @Ku9787 , who made US$5,038 by selling $Microsoft(MSFT)$ put options.
How does it work?
Suppose a stock trades at US$100, but you’d rather buy at US$90. You sell one put with a US$90 strike price and collect a US$2 premium per share, or US$200 for a standard 100-share contract.
If the put expires worthless, you keep the premium. If you are assigned, you must buy 100 shares at US$90 each. After the premium, your effective purchase price is US$88 per share, before fees.
Why sell puts after a big drop?
A sharp selloff can push up implied volatility (IV) as traders expect bigger price swings ahead. Higher IV often means higher option premiums. For someone who already has a buying price in mind, that can make selling a put more appealing.
A larger premium comes with an obligation. If the stock keeps falling, the put can become more expensive, making it costly to close the position. A short put can show an unrealised loss even while the stock remains above the strike price, particularly when there is still time until expiry and IV has risen.
Buffett used a similar strategy with Coca-Cola. At Berkshire Hathaway’s 1994 annual meeting, Buffett discussed the company’s sale of puts covering roughly five million Coca-Cola shares the previous year. The trade generated premium income and could have resulted in Berkshire buying additional shares if the puts were exercised and assigned.
That is the part worth thinking about before placing a similar trade. Would you be comfortable making the full share purchase at your chosen strike? A premium can make an entry price more attractive, but the company and the size of the potential position still need to make sense to you.
Can regular investors do the same?
A cash-secured put can suit investors who already want to own the stock and have enough cash set aside for assignment. In our example, one contract means a potential US$9,000 share purchase. Assignment can also happen before expiry.
The risk is a much bigger drop. If the stock falls to US$75, you may still have to buy at US$90. After the premium, that leaves a US$1,300 loss at that market price, before fees. Your maximum profit on the put remains US$200.
Before focusing on the premium, ask yourself whether you can afford—and would still want—the full share position after another sharp decline.
Would you sell puts on Microsoft or Micron after a big drop, or buy the shares directly? Have you ever sold a put and ended up taking assignment? Share your trades below!
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