Combining the Best of Both Worlds Options and Stocks

Tom Gentile

Posted in
Education

By: Tom Gentile
February 16th, 2024

4 mins read
Options Plus Stocks equals profits

It only took one more day for the S&P 500 to close above the 5,000 mark.

If there are people wondering if they should start investing this might compel them to do so.

Everyone who thinks of investing to everyone who gets started investing in the stock market understands they have to buy a stock for the chance to see the stock go higher  in order to make money by selling it a higher price.

Get Paid to Buy a Stock. Sound Sweet? It Is.

If you haven’t ever heard of this being a thing, you may think it sounds like something out of Tom Sawyer where one is trying to work the system and take advantage of something or someone for their own gains, but it is a legit way to acquire stock.

And to me doing this strategy is a way to acquire stock at a discount to the current price of the stock when they execute said strategy.

There are two types of options a Call and a Put. The Put option is what I will discuss here as it is the type of option to use when trying to get paid to buy a stock.

A Put options gives one the right to Sell the stock at a specific price on or before a specific date at a specific price. That is should one buy a Put.

What I am going to quickly teach is the basics of Seling (to Open) a Put. When one sells they give the right to the markets the right to have the stock ‘put’ to them at a specific price on or before a specific date.

The two things I anticipate could happen is 1) I sell to open a put option, say at a strike price of $50. If the stock is trading above $50 at expiration the markets would not ‘put’ the stock to one’s account. If one thinks about it the markets get a chance to sell it for a higher price or at the lower $50 price they will do so at the higher price.

That means the put option expires and I, as the seller of the put option keeps the premium sold.  I can then try and do it again next month or further out in time if I want.

The other thing that could happen is 2) the stock gets ‘Put’ to me at the strike price I sold to open

In the above situation where I sold to open the $50 strike price Put. If the stock is below $50 at expiration my account would likely get assigned the stock at $50. But, if I sold to open the put for $2.50 to begin with, I keep the premium and acquire the stock.

My basis would then be $47.50, ($50 assigned stock less the $2.50 I brought in to begin with).

See there? I got paid to buy the stock in that instance. Now that I own the stock I can wait until it increases in price to sell later, or I could write covered calls. In either case it is my decision, but the thing to learn is with Seling (to Open) Puts I either keep the sold premium or I buy the stock at a discount to what it was when I pursued this strategy.

Talk with you financial professional as there may be some up-front money you will need in your account to do this. Your account would be at risk of being assigned the stock so the brokers may require the total amount of money or a portion of it should assignment happen. This would be what’s called a ‘Cash Secured Put.’

Tom Gentile
C1P: Chief 1-Percenter

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