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Selling Cash Covered Puts


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Selling Cash Covered Puts

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  #1 (permalink)
Tarzana, CA
 
 
Posts: 22 since Dec 2016
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I know almost nothing beyond the basics of Options trading. If there is a security that I would like to own, I understand that selling cash covered puts might be the best way to go about acquiring it because I can collect the dividend and risk is not really more than buying the underlying security. How do I know which strike date and price to buy for my particular security? Is there a formula or a site that walks one through the basics of deciding?

Thank you so much.

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  #3 (permalink)
Tarzana, CA
 
 
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Is there another section I can post this in in order to increase viewing?

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  #4 (permalink)
Site Moderator
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YGRYGR View Post
Is there another section I can post this in in order to increase viewing?

I would advise - if you haven't already done so - to put the word "options" in the forum's search box, look for the relevant threads, and see who contributed.

Then you could approach the users that sound more knowledgeable to you on that subject, inviting them to offer their view here.

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  #5 (permalink)
Tarzana, CA
 
 
Posts: 22 since Dec 2016
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I know almost nothing beyond the basics of Options trading. If there is a security that I would like to own, I understand that selling cash covered puts might be the best way to go about acquiring it because I can collect the premium and the risk is not really more than buying the underlying security, which I wouldn't mind owning anyway. How do I know which strike date and price to buy for my particular security? Is there a formula or a site that walks one through the basics of deciding?

Thank you so much.




That's a corrected version of my post above.

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  #6 (permalink)
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Yes selling cash secured puts CAN be a great way to acquire stock. The advantage is that the option premium lowers your effective price for the shares. The disadvantage is that the stock could stay above the strike price and soar leaving you with just the option premium. Picking a strike price and expiration is where the art comes in. At the money puts have the most time premium while out of the money puts have less. In the money puts have a higher price but less of it is time premium. The further out expirations have more time premium than closer in but give the stock more time to move. Matching this with chart analysis of the stock should help you decide what option to sell to generate the best combination of price and probability of acquiring the stock.

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  #7 (permalink)
Legendary Market Wizard
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Just in case people do not know.
Selling Cash Covered Put Options = Buying Stock and Selling Call Options

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  #8 (permalink)
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YGRYGR View Post
I know almost nothing beyond the basics of Options trading. If there is a security that I would like to own, I understand that selling cash covered puts might be the best way to go about acquiring it because I can collect the premium and the risk is not really more than buying the underlying security, which I wouldn't mind owning anyway. How do I know which strike date and price to buy for my particular security? Is there a formula or a site that walks one through the basics of deciding?

Thank you so much.

That's a corrected version of my post above.

example you want to own CME stock, google' CME option chain' you will see


pick the strike price that you know you have enough cash to pay(cover) for 100 x strike price then just go ahead and sell the put option associated with the strike price you are interest in. Click on the put option will show you the option symbol. I use Etrade or Fidelity to do option trade.

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  #9 (permalink)
Limassol, Cyprus
 
 
Posts: 17 since Sep 2019
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There's a solid SMB options vid on YT for cash covered. Really - the only kind of options I like to sell when you consider the risk.

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