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Here is another example of selling puts on strong company's to generate extra income! Apple is a wonderful business to own long term and is very cheap relative to the overall US Stock Market. As we all know in the smart phone business a two year old phone is ancient. This means roughly million iPhones users are waiting to upgrade. This pent-up demand could create the largest amount of Iphone's sold in a six-month period.
He believes suppliers are preparing to meet demand for as many as million units. As a reminder when selling a put you agree to purchase the shares of stock at the strike price if the put owner decides to exercise the option. So by selling a put we can generate income from the put option price sold called premium and potentially buy the stock at a discount to today's price.
Please let me know what questions you have and what additional information you would like to see in these posts. Only you as an individual can decide what percentage of your portfolio you wish to risk in any one company. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. Something else to consider is the price of the puts, which reflect some implied volatility, or downside risk to the stock that'd work against you in the trade.
If the puts are not priced high enough to cover future expected losses, then it's a losing bet, no matter what we think of the fundamentals of AAPL.
Further, this is all just probability, but for the average trader realized losses up front can be devastating even if long horizon expected returns are positive. Here are some additional resources: The more the put selling strategy is studied and understood, it seems to be to be a safer alternative to buying the stock outright. However, the strategy works best when you actually want to own shares in the company at the strike price that the put option represents.
Then it is really a win win as you either, at expiration, own the stock at a lower price than the current market is offering or you keep the option premium and are able to sell a future months option to generate more income. Anyway, def worth looking into more and having fun trading This was very well written, thanks for sharing it. I am curious do you ever sell the calls as well to maximize the profit potential of the the trade? I realize this turns it from a bullish strategy to a nutral one but if you sell a far out of the money call you can still acomplish the same goal.
Only you as an individual can decide what percentage of your portfolio you wish to risk in any one company Disclosure: Authors get paid when people like you upvote their post. I'm a fan of augmenting portfolio strategies with options, just need to consider all angles.