Getting paid to buy stocks... Does it sound too good to be true? Well, it is possible with cash secured puts!
If you would like to do a cash-secured put on a stock of your choice then you must have enough capital to buy the stock at the chosen stock price. So, if you choose to sell a cash secure put at a strike price of $100 then all you have to do is $100 x 100 = $10,000. You will need $10,000 cash collateral to sell this option.
Here is the options chart where you will need all your information.
What you need to pay attention to:
Strike Price
Breakeven
Price
Expiration Date
Strike Price - If the stock is at this or below this price by the time of expiration then you will be forced to buy 100 shares at the strike price. So, if you sold a contract for Apple at a strike price of $170. You will be paid $33 (0.33 x 100). If the stock goes down to $165 by the expiration date then you will still have to buy 100 shares at $170 a share.
Break-Even - The price of the stock which you could sell and break even after premiums. Looking back at the Apple chart. $170 strike price with a premium of $0.33 has a breakeven of $169.67. If the stock price goes below break even then you would've made more money by not selling the contract and rather waiting to buy the stock at a lower price. That doesn't mean you lost money, but you could've had a better entry.
Price - How much you would be paid for selling this contract multiplied by 100. The $170 contract price is $0.33 which would result in a $33 premium.
Expiration Date - The date the contract expires and if it's in the money (at or below the strike price) then you will be forced to buy the shares and keep the premium. If it's out of the money (above strike price) then you will receive your cash collateral, keep the premium, and not have the shares.
You will earn a premium whether your puts get assigned or not. So, it's important to choose a price you're comfortable with owning the shares and even if it dips below that, you were going to purchase it anyway.
Example
You want to buy Apple stock for $150 per share.
You sell cash secured puts weekly and after 1 month (4 weeks) your put gets assigned.
Outline
100 shares of Apple bought at $150 and you earned $50 premium each week. $50 x 4 = $200. You bought the stock for $150 as you were planning to and earned an extra $200 during the process, which is equivalent to purchasing the stock at $148 a share. Now you can continue to earn money by doing covered calls. To learn about covered calls check out this article -> Passive Income with Covered Calls Options
How to sell cash secure puts step by step?
Have enough capital for 100 shares of chosen stock
Go to the options chart
Click "sell" and "put"
Click strike price you would like to sell the option
Insert the needed inputs and click submit
Execution is simple, strategy is not.
You can utilize cash secure puts to earn capital while aiming at purchasing a stock at a certain price. Not only do you buy the stock at your strike price, but you also lower your breakeven price. Then after you purchase the 100 shares you can continue to do covered calls and earn passive income and continuously decrease break-even on stocks you own.
This is the best example of having money work for you and should be taken advantage of by every stock investor.