ok well basically a put is a contract for 100 shares. Through trial and error I've learned to sell them on down days bc the price of the put goes up.
So take Phillip Morris my favorite stock. It's at $89+ as of friday, let's say you sold the $87.50 July 20 put for .63 like I did last week, it's now worth .47 and the closer we get to july 20 and the further away from $87.50 the price of the put will go down and hopefully expire worthless and you keep .63 per share in 1.5 weeks.
Now, time decay is on your side, I had 2 days, saturday and sunday, where the market was closed but the value of my put will increase bc I just knocked 2 of the 7 days before the put expires off and now we have 5 days of market trading before the put expiration is due.
Essentially the share would have to fall $2 to $87.50 before I would be forced to buy the stock at which point I would be buying it for $87.50 minus $.63/share so my final price would be $86.87 which I feel is a superb price.
Let me give an example on a big scale.If you trade 10 contract, 1000 shares, you would have made $630 in a week which doesn't sound like much when you're risking $87,500 you make just under 1% for the week.....imagine that kind of ROI week after week for trying to buy a stock below it's current price?
I don't advocate this strategy unless you have a high risk tolerance, and a high cash balance but I asked around for help here a few weeks ago and gave it a whirl on a long term put but then realized the short term week to week puts was where the real big bucks are at. The long term ones are like 40% ROI in 2 years which is awesome, the weekly ones are anywhere from .5%-2% a week depending on how risky you wanna go.
Just saying there are so many different investing strategies out there and if you love it, and you enjoy finance, do some research you will thank yourself later. I've had some great success in the past month selling puts and it's only my first month. Essentially if a stock goes up or sideways you win, hell you win even if drops a little in some circumstances.....vs buying the shares out right, the shares must go up to profit. All this in a short term period, hell you can sell weekly puts on wednesday and have 2 days before they expire to mitigate risk.
If you expect phillip morris earnings to be $5.57/yr + $3.40/yr dividend that's right around $9/year. If I sell weekly puts at may .60/share for 52 weeks you would make $30/yr, 300% difference. You could be more aggressive and sell at the money puts that are over $1/share/week.Of course that's if every option contract expires worthless which won't happen but you get an idea of what I'm saying. Worst case you get put the shares for below today's price and you can hold and sell later....
This post was edited on 7/14 at 2:10 pm