Not many people realize that selling puts can be a very good strategy in the stock market. It can be a great source of income and help you get into stocks that you already like at a lower price.
It works like this you sell someone else the right to sell a stock at a certain strike price on or before a given date. For this you collect a premium, but are forced to buy the stock if it does go down to the strike price you sold or lower.Why you obligate yourself to buy a stock? For these three reasons.
1. You Get Money Up Front
Not many trading or investing strategies give you money up front. Can you go to a company and tell them, “I want to buy your stock, but can you give me money first?” No way. They would laugh at you. But by selling puts you can start the trade by getting paid to buy a stock. It is better when you start off making money.
2. Not Have to Worry About it
If you swing trade or day trade you can spend a lot of time in front of the computer entering new trades and managing trades that you are already in. But if you sell an option all you have to do is sell it and wait until it expires, then sell another one.
3. Low Stress
Naked puts are less stressful especially if you know that the underlying stock is a stock that you would not mind getting into and you have enough money into your account to buy it if you need to.
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When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.