Are you ready to jump in? If you’ve been reading anything I’ve been writing you know I’m not ready. I will buy stock to cover Naked Call, if needed. And, there is another way to make money with “buy orders.” Not necessarily buying the stock but placing an order to buy a stock by selling a Put.
Selling Puts in not a favorite strategy of mine. But with the stock prices low and the premiums very high there are some good opportunities in this crazy time. This is the great thing about options, there’s always a way to make money.
My son, Stephen Jr, one of our contributing writers, is a big fan of selling Puts. We talk about this strategy often. He especially loves this strategy now with the premiums very high. The way the strategy works is you sell someone the right to PUT a stock to you at an agreed price. When you sell a Put you receive money. That’s a good thing! You receive money because the Put seller has the right to sell you the stock at the price in the contract. Let me give you an example with a trade I just made.
I love the stock Square (SQ). The stock is beaten down like most others. A few weeks ago the stock was at $85. Today it’s at $36. I think it’s almost time to buy this stock. I’m not ready to just buy today at $36 because the market’s down and I don’t trust it’s time for the stock to go up yet. When I look at this stock, and where I think it could go when the market starts moving, I think SQ can be a great opportunity. I look at the stock and the market and I would love to own this stock at $30. I decided to sell a Put at $30. I received a premium from someone who wants to sell me his stock at $30. He will only do that if the stock drops below $30. With the stock at $36.35 I sold 10 contracts of the 3/27/20 $30 Puts for a premium of $1.10. I received $1100 giving someone the right to sell me his 1000 shares of SQ at $30 before this Friday. Well, let me tell you, to me this is easy money! I’ll take the chance that this stock will not be below $30 before Friday. But, this is crazy times! If it does drop below $30, I’ll take it! And get paid $1100 to buy this great stock at $30.
Sell to Open 10 SQ 3/27/20 $30.00 P @ $1.10 (+$1100)
I give this trade a Risk Factor 1 because I want the stock at $30. To me there’s no risk here.
UP DATE
A little while ago I sold Naked Calls on AAPL & MSFT. The market went down and I’m already out of the AAPL trade with a nice 2 hour profit. Remember, this was a Naked Call with a Risk Factor 5. In this situation I take profit and run. Here’s the completed trade.
Sell to Open 5 AAPL 3/27/20 $225.00 C @ $10.00 ($5000)
Buy to Close 5 AAPL 3/27/20 $225.00 C @ $5.80 ($2900)
Total Profit +$2100
Not bad for a 2 hour trade!
I really like my trade selling the Put to buy SQ. This can be a very good strategy with the high premiums. I know I don’t sell many Puts so If you have any send me an email.
Successful Trading,
Steve
The Options Coach