Options Trading Question - Selling Puts

if you have to ask a question about options, then maybe they aren't a good thing to play around with.

It's insurance.

Buyers of puts want downside protection. Sellers of puts take premium.

Sellers of calls collect premium. Buyers of calls may want to control a larger position with less capital out lay.

I sell options, both puts and calls.
Most options expire worthless.

He's selling a cash covered put. He has a maximum loss certain.

Right, you're lowering your entry cost. Berkshire sells puts for this reason. But it is a maximum loss certain if the stock goes to zero. What you paid including fees, less the premium you collected.

Thanks

Good advice, thanks

Anyone want to give us a Quick lesson?

How much would he make from that if it expires worthless? What is his risk?

I've traded but never sold.

If he got the 0.2 ask that would give him $20 in premium. However, the bid is only .10 so it's likely not to get filled if the limit is above about 0.16 (last). But let's say it did anyway. The seller (OP) received $20 - $7ish commission for $13 net gain per option contract (100 shares).

The maximum loss is if the stock goes to zero which is obviously quite unlikely. But let's say it does anyway. Then the owner of the put (buyer) would force the seller to take 100 shares at $30 per share or $3000. The seller made $13 earlier, so his maximum loss is $3000 - $13 = $2987.

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Not necessarily a loss if it's a stock you'd be happy buying at that price anyway, right?

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Correct.

And personally, I think that yours was a good question. I didn't take it that you wanted to jump into the options market without being fully prepared. But rather, you were asking a question to see if what you *thought* was the case was indeed the case.

If and when one has a decent sized equity portfolio, I think that it's important to have at least a good, fundamental, working knowledge of how the options markets work - even if you don't immediately use that knowledge by opening options trades. Options can provide profit opportunities and they can also provide downside protection (insurance). Most of what I have is because of real estate investments made years ago. But I use options to protect (and grow) what I have in the equity portion of my portfolio.

As for stocks that you'd be happy to own at a certain price anyway, that's how I felt when I sold some $90 puts on NFLX several months back and I got exercised into a position. Sometimes it just works the way that you want. Sometimes not... but you take the good and run with it.

Good luck to you.