Trading Options Tutorials - Cash Secured Puts

Feb. 21, 2011 - PRLog -- Trading Options Tutorials

In this option trading tutorial you will learn how to use cash secured puts to generate income.

Cash secured puts are a fantastic strategy for beginners to start out as a way to learn option trading. For those who don't know what a cash secured put is, it involves selling a put on a stock you want to buy to collect the premium and / or reduce your purchase cost. For example, if there is a stock trading at $50 that you want to buy, you could sell a 1 month put option for $1.50 and leave the $5,000 in your account earning interest rather than buying the stock outright. Then in 1 month's time, if the stock is trading above $50, you keep the premium and repeat the process. You've just earned a 3% return in one month or 36% p.a.

If the stock is trading below $50 at expiry your option will be exercised and you will buy 100 shares for $50, but you still keep the option premium which effectively reduces your cost per share to $48.50. Get Internet #1 - Buying Options Tutorial @ http://www.freewebs.com/tradingcure01 and be Successful forever!

Anyway, back to the strategy and how you might trade it. Let's assume you have $10,000 of capital and you want to purchase 100 shares of the $50 stock. In the first month, you sell just 1 option which means if you're exercised you only have to buy 100 shares. This way you have not risked all of you capital right away. As we saw earlier, if the stock stays above $50, you keep the option premium and have made $150 or 1.5% on your $10,000 in one month. Yes, this is less than the 3% you could have made if you sold 2 options, but your risk was also lower. By not buying all 200 shares at once, you can take advantage of dollar cost averaging further down the line.

In month two, if you still like the stock at the current price you write 1 new put option. You continue this process as long as you still like the stock and are happy to own it. Get Internet #1 - Buying Options Tutorial @ http://www.freewebs.com/tradingcure01 and be Successful forever!

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