Big E 757

The only options you can trade are covered calls. I wish they’d allow us to trade “cash secured naked puts”.

Let’s say you want to own FB (Facebook) stock, but because it’s been on a good run, you don’t want to buy it at $271 a share, but at $230 or $250, you’d love to own it. As long as you have $23000 ($230x100 shares) or $25000 available ($250x100 shares) you could sell a FB $250 put option today and collect the premium. If FB drops to $250, your put option gets exercised and you’re the happy owner of FB stock at the price you wanted. If FB doesn’t drop to $250, the option expires worthless and you keep the premium. You do that every month, and continue collecting the premium until the stock drops to the level you want to buy it at, in the mean time, you’re making money on FB without even owning it. It’s a pretty riskless strategy that even Warren Buffett uses to not only get a great price on good stocks he wants to own, but to make money off those stocks while he’s waiting for his price.

I get that it’s not for everyone, but I’d be using this strategy in my 401K a lot if it was available to us.

Edit: I should say it is a pretty riskless strategy, as long as you do, in fact, want to own that particular stock.

Right now, the January 15 $250 put is trading at $460
$230 put is $182

The December options don’t expire till next week so this isn’t a great comparison because if you did it every month you wouldn’t quite get those prices because you’d have to wait until your option expired next week until you sold another option, Unless you had another $25K laying around, so let’s say you could get $380. You’d be making $380 a month on your $25K cash position. You’d earn $4560 in a year (assuming FB stock didn’t move and you kept your $250 price. $4560/$25000= .1824 or 18.24% return. If FB goes up, you wouldn’t collect the same premium every month but you could adjust your option to one closer to the money.