Option Strategies - Selling Naked Puts

Yesterday I advised I would explain how you can make money before you buy stock or how you can make money after you own stock.  Its pretty easy.  Let's say you want to buy 100 shares of Tesla Motors (TSLA).  This company makes electric cars and the stock has gone up a lot over the past few months.  There still may be room for the stock to increase however there may be some short term downside.  The price per share is currently $102.50.  You can buy 100 shares right now for $10,250.  Or you can use options to make money on the stock before you buy.  This strategy is called selling naked puts.  A put is an option that gives you the right to sell a stock for a specific price.  So if you Sell a put this will give you the obligation to buy a stock for a certain price.

So, here's how it works.  Let's say you want to buy the stock (TSLA) but don't want to pay more than $90 a share.  You believe the stock will decrease to 90 at some point over the next few months.  You can either put in an order to buy 100 shares at $90, which will make you no money while you wait.  Or, you can sell one PUT contract of TSLA at a strike price of $90.  Since the stock has been pretty volatile over the past few months you should be able to collect a pretty good premium.  Looking at the June 21, 2013 expiration date you can sell this put contract for $2.50.  This means you will immediately make $250.  If the stock stays above $90 per share you pocket this $250 and can re-write the same strategy for the following week or month.

Now, if the stock decreases to $90 or below you would have the obligation to buy the stock for $90 per share, or $9,000.  You still get to keep the $250 you made by selling the put.  And you were able to buy the stock at the price you wanted.  The risk you take by doing this is if you really want to own the stock and the stock keeps going up you won't be able to own it.  But at least you made a quick $250.

You could also sell a put with a higher strike price.  If you sold a $95 put expiring on June 21, 2013 you would pocket $410. 

I think this is a great option strategy and should be used anytime someone wants to buy stock at a price lower than it is currently trading.

Once you own the stock, I will show you how to make money on this asset each week or month by using options.  Check out my blog later for this information.

Anyone looking for some ways to get started collecting option premium please Click Here! or to find undervalued options Click Here!

Jon