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For All Your Investing Needs |
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Welcome to the Options Section of Options Realm |
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Selling Options to Collect Premiums Have you ever wondered how you can take advantage of options in your everyday trading activities? Well, today I am going to talk about how you can take advantage of options in your everyday trading in order to make money off of the premiums. Lately I have been noticing that many of the companies that I follow are above the entry points in which I would like to buy the stocks. This presents an opportunity for me to make money while I wait for the stocks to go down to the level that I want to buy them at. This is where the options come into play. Through the process of selling a put I am entering into an agreement to buy 100 shares of a set stock at a certain price in the future. This gives me the ability to profit while I wait for a stock to get to a price at which I want to buy it. An example would be say stock X is trading at 45.00 and I wanted to buy it at 40.00. I would sell a put for stock X with a strike price of 40.00. If the stock does not go below 40.00 at the time the option expires then I will make the profit of the premium that the put option was sold for. If the stock does go below 40.00 I will have to buy the stock at that price which will mean I have to pay 40.00 a share for the stocks. Which in reality will be 40.00 times 100 or 4000 then minus commissions. That will be the price that I pay for each share. I can then turn around and sell a covered call at a strike price of 45.00 on the shares that I just acquired. This will give me a profit of $500 plus the cost of the premium that I collect. Through using options like I displayed in my example you are giving the possibility to profit from a stock as you wait for it to approach your target buy in price. |
