Selling Puts
When you are bullish on the market, or simply wish to buy a particular stock at a lower price, you can sell puts.
When you sell a put, your are selling someone the right to sell you the underlying asset at a certain price on or before the expiration date of the option.
If the asset price is above the exercise price at expiration, the put will expire, and your obligation will be removed. If the asset price is below the exercise price at expiration, you are then obligated to purchase the asset at the exercise price.
Please see the below for an example. Clients should read an Options Disclosure Document before embarking on this strategy, and are required to complete and sign an options applications form.
For example, suppose XYZ Corp. is presently trading at $71.25 per share. You expect XYZ Corp. to trade lower in the short term and will be able to purchase XYZ at a price below $70. You are then able to sell 1 XYZ 70 Put for $3. You must have $7000 available in money market or on optionable margin.
If the prediction is right, XYZ trades below $70 at expiration date, you then buy the stock with an effective purchase price of $67 ($70 - $3 option premium).
If the prediction is wrong, XYZ trades higher, the $3 put expires worthless and you then keep the $3 option premium with no further obligation.
To find out more about our options strategies or about any of our investment services, give us a call at 800-808-7488 or fill out our contact form.
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