Hello, I want to share a common but effective options strategy with you. Don’t let the word “options” scare you off. This strategy is simple and easy to pick up, best of all, it gives you a consistent flow of income every 30 to 45 days.
Take Apple Inc. (APPL) as an example, this stock is trading at around $149/- today. Let say we want to buy the shares of Apple but not sure will it drop in the next 1-2 months. If it drops to $145/-, we will definitely be interested. So, most people will either buy the shares at $149/- or wait for the share price to fall but not us! We will get paid while waiting for the share price to drop to $145/-.
We will sell a Put option at $145/- strike price with expiration date 20 Aug’21, we will collect a premium of $330/- (100 shares X $3.30).
If by end of 20 Aug’21, Apple share stays above $145/-, we don’t get to buy the share but will keep the premium of $330/-. Not bad, $330/- just for waiting!
If Apple share say drop to $144/-, we will still buy the share at $145/- and keep the premium, effectively reducing the cost of the purchase to $141.70.
The real risk here is when Apple shares drop to zero and we still have to buy the shares at $145/-. So, choosing a good company where the share price is stable is important here.
So, if we are more keen to collect premiums than buying the shares, what should we do?
Well, we can sell the Put at a lower strike price of say $135/- and collect a premium of $106/- ($100 shares X $1.06), assuming that Apple share price don’t drop below $135/-.
Important: Please note that you need to have enough cash to buy the shares. In our example, it will be $14,500/- (100 shares X $145/-)
Now, let say Apple share price drop to $144/- and we brought the shares at $145/-, what should we do? We can sell a Call option at a higher strike price and continue collecting premium while waiting for the shares price to move up.
You can just use this 2 steps strategy to generate consistent monthly income.
Take Apple Inc. (APPL) as an example, this stock is trading at around $149/- today. Let say we want to buy the shares of Apple but not sure will it drop in the next 1-2 months. If it drops to $145/-, we will definitely be interested. So, most people will either buy the shares at $149/- or wait for the share price to fall but not us! We will get paid while waiting for the share price to drop to $145/-.
We will sell a Put option at $145/- strike price with expiration date 20 Aug’21, we will collect a premium of $330/- (100 shares X $3.30).
If by end of 20 Aug’21, Apple share stays above $145/-, we don’t get to buy the share but will keep the premium of $330/-. Not bad, $330/- just for waiting!
If Apple share say drop to $144/-, we will still buy the share at $145/- and keep the premium, effectively reducing the cost of the purchase to $141.70.
The real risk here is when Apple shares drop to zero and we still have to buy the shares at $145/-. So, choosing a good company where the share price is stable is important here.
So, if we are more keen to collect premiums than buying the shares, what should we do?
Well, we can sell the Put at a lower strike price of say $135/- and collect a premium of $106/- ($100 shares X $1.06), assuming that Apple share price don’t drop below $135/-.
Important: Please note that you need to have enough cash to buy the shares. In our example, it will be $14,500/- (100 shares X $145/-)
Now, let say Apple share price drop to $144/- and we brought the shares at $145/-, what should we do? We can sell a Call option at a higher strike price and continue collecting premium while waiting for the shares price to move up.
You can just use this 2 steps strategy to generate consistent monthly income.
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