Investors seem to have an extreme aversion to selling
American investors have "heard" that selling puts is
inherently risky. And this belief has been reinforced by the
mainstream financial media. Simply put: Most "experts" in the
financial media portray this kind of strategy as too complicated
for the average investor. Again, they want you to buy the next
For whatever reason, there's no doubting that this fear of
exists. The fear is real. But the evidence for this fear is
And yes, selling puts can be dangerous - but only if you use
them in incredibly stupid ways.
But I can guarantee that once you learn how to use this
type of investment, you will immediately begin to see the whole
world of finance in a different light.
Instead of "paying" people to invest your hard-earned money, you
learn to get paid to invest. I know it sounds like a strange
concept, but hear me out because it's a strategy professionals
have used successfully for years.
The first key to selling puts safely and profitably is knowing
the real risks in owning an asset's shares. We need to assure
ourselves the assets on which we sell puts are fundamentally
For instance, take
It's a commodity that we feel comfortable owning for the long
haul, mostly due to the ongoing uncertainty in the global
) is currently trading for $19.27.
In my opinion, the price is a little inflated. I prefer to pay
Remember when I said we want to get paid to be investors?
Well, given our desire to own silver at $18.50 - we can get paid.
Think about that: we can get PAID to agree to buy a silver
at a lower price that we prefer.
I don't want to get into the details in this short column, but
we can sell one put contract that gives us the ability to buy 100
shares of SLV at $18.50 a share - and collect an immediate
And no matter what happens, we get to keep that $45. If SLV
stays above $18.50 - the $45 we collected is ours.
But for the sake of understanding, we should examine the
alternative - SLV closing below $18.50 by option expiration in
roughly 45 days.
In that case, we'd keep the $45 and be forced to buy the
silver ETF at $18.50 per share.
In this case, we'd actually own the silver ETF for $18.05 per
share - that's the $18.5 strike price minus the $0.45 premium.
That 6.3% less than SLV's current market price.
Here's that math:
Initial income from sold put premium - $45
Purchase 100 shares of SLV at $18.50 - $1,850
Initial outlay - $1,805
The important thing to remember is that if the stock
trades below $18.50 by option expiration, you become a
shareholder just like everyone else . . . but at a
One way to think about it is that you'd receive roughly $360
on a $1,850 investment annually. This works out to 19.5% on your
To me, this safe 19.5% return is superb given the current
and other safe investments . . .
Simply, selling puts is not inherently dangerous. If used
correctly, it's no more dangerous than buying a
blue-chip dividend-paying stock
And if you're interested in income, it's something you owe to
yourself to look into.
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