Best Uses For The Put Option

Why should you care about a put option? Well . . .

Did you lose money when the Internet bubble burst back in 2000?

What about in 2008?

Have you ever bought a stock at a price that was too high because you wanted the dividend? And then regretted it when the stock price fell?

Have you ever looked at a stock that was insanely overpriced and wished that you could short that stock, but were afraid of taking the “unlimited risk” associated with shorting?

If you answered “YES” to any of these questions to need to learn how to trade put options.

(Special Note:I have an offer for a FREE report below)

Many retail investors are afraid of puts because they are very counter-intuitive.

• Investors are conditioned to understand and associate profits with rising markets. The put option investor profits when the stock market falls.
• BUYING a put option gives you the opportunity to SELL a stock at a predetermined price.
• SELLING a put option obligates you to BUY a stock at a predetermined price.

They also think options are risky.

They ARE risky if not used properly. By not used properly I mean options used as a speculative gamble in an attempt to make a big gain based on an anticipated market move (Secret: That’s not the way to make money in options!)

But…

The put option is an extremely powerful trading tool for conservative investors like us.

The put option allows you to . . .

• Protect your portfolio against losses.
• Safely “short” a stock without the risk.

  The bottom line is puts are really the ONLY TOOL we small investors have to MAKE MONEY WHEN THE MARKET (or a stock) IS FALLING.

• Finally, puts allows you to collect income while waiting for a stock to fall to your desired buy price.

Think about this for a minute.

You are paid a dividend-like premium while you wait for the stock to fall to your desired purchase price.

You automatically buy the stock at that price if the stock declines to that level with no action from you. No need to monitor the stock price!

I use two of these three strategies regularly to invest safely and make money. Continue reading to find out which ones.

I believe very strongly that in today’s stock market environment you will not achieve your investing goals without using puts effectively.

The retail financial services industry has conditioned you to rely (and hope) for a long, sustained upward market to achieve your financial goals.

That market environment is gone.

You have to know how to make money not only in an up market, but also in a down and sideways market too.

You need to spend some time learning the basics because options trading is complex and sometimes counter-intuitive .

Once you master the basics you can then invest more money in your own education to master advanced trading strategies (the stuff that you really need to know to actually make money in options trading), or

You can use your basic knowledge and gain leverage by subscribing to an advisory service.

But don’t subscribe to anything before reading my FREE report on options advertising (the offer is at the bottom of this page).

You can buy and read a lot of books and buy a lot of different options courses.

I’ve learned through many years of trading options what works and what doesn’t work for the small investor.

The strategies I consider to be the best

There are many strategies but most are not appropriate for your investing style or investment goals. These strategies are appropriate for me and may be for you too.

I like to use vertical put spreads to protect my portfolio.

• The spreads allow me to lower the cost of protection.
• It takes into account realistic market moves that often bounce off of support levels or moving average lines.
• I can always take my profit on the spread and roll it down if the market continues to fall.
• The spread strategy is relatively simple to conceptualize compared to some other strategies.

Establishing a vertical put spread that provides an effective hedge to protect your portfolio requires some thought and research.

You must carefully consider and select the right strike price, expiration date, and number of contracts to achieve the desired response to stock market moves.

Cash Secured Short Put

I love this strategy when there is a dividend paying stock that I consider to be priced too high. Remember, I am a value investor meaning I like to buy stocks that are UNDER priced.

I pick a price that I am willing to pay for the stock.

I set the appropriate amount of money aside to buy the stock at that price.

I SELL a put option contract with the strike price at the price that I am willing to buy the stock, and an expiration date with good time decay value.

I wait.

I’ll own the stock for that price if the stock falls to the price that I think it’s worth and the short put is assigned.

I’ll pocket the premium and sell another put option if the stock remains above my designated purchase price. The beauty is that by pocketing the premium I am being paid a dividend-like income without owning the stock.

The risk is that the stock may continue to falling in price resulting in a loss since I am buying the stock when the put option is exercised.

”Shorting” a Stock Using Puts

You can buy a put option if you think a stock is overvalued and due for a price drop.

You profit from the put option when the stock falls in price. You lose money if the stock price doesn’t decline.

I do not employ this strategy. I’m pretty good at picking undervalued stocks. I’m not good at picking overvalued stocks that will start falling in price before the expiration date I pick.

Down load a FREE report on options

There are many other ways to employ the put option. I have provided you with three examples, two of which I use in my own portfolio.

Being successful in options trading requires education. You may need some help finding the right options contracts because there are many variables to consider.

Subscribing to an options trading service may be worth the expense if you do not have the time or tools to do it yourself.

Picking the right service may be hard.

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