Stock Insurance – Generate Earnings Before You Buy Shares
If you own a stock, you can buy a put for it. This means that if the stock falls below a certain level, you can choose to sell the shares to others at a predetermined price. This is called insurance, against price falls too much. You pay premiums on this insurance, as with any other form of insurance.
When buying stocks, we can take advantage of this. I do not recommend this strategy for short-term trading, only recommend it if you decide to continue to buy some stocks. (I like to simply trade options because having stocks may be riskier, but others prefer to buy stocks themselves, in which case it can be an excellent income generator).
Suppose we want to buy (virtual company XYZ) XYZ. We want to buy 500 shares at the current price of $ 14.93. This is an investment of $ 7,465. If we are willing to buy at $ 14.93, then we might be happy to buy at $ 14. To this end, we can sell put options. This is the other side of the insurance. IE If the stock falls to $ 14 or below, we will have to buy 500 shares for $ 14. Therefore, we will get the price of 14 US dollars of stock ownership, rather than today's 14.93 US dollars. And, to that end, we will receive a premium of $ 0.37 per share. (Options for 100 shares). Therefore, the premium will be 0.37 times 100 times 5 = $ 185. The income we keep. Revenue was 2.4% of 74% of 74% of investment. If the stock remains above $ 14, we will reserve a premium and then sell for next month. If we do this every month, our return will be 29.7% during the year – probably better than the expected dividends and capital gains.