Getting paid to buy something seems like a Tom Sawyer trick, but it is doable, and this article will educate you how.
I am going to show you how to get paid to potentially acquire GLD at below current market prices.
This involves using put options. If one is primarily an investor or an options trader who doesn’t mind owning shares of a security this education is for you.
Before I get in to all that let’s look at this chart on GLD I’ve shown recently.
The annotation I have on the chart says it looks like a double bottom in price for GLD over this time frame.
The current price and the last 4 trading days appears to be forming a pivot low, and if that is the case it will be a higher low from the previous ones. That is deemed bullish.
If you are long-term bullish on GLD then continue to stay the course.
I recently showed you an order to buy the stock. The price at that time was 177.17 and I showed the order to buy 100 shares at $175 limit. This would make the cost on 100 shares $17,500.
There is Another Way to Acquire GLD using Options.
Instead of just placing an order to buy the stock outright, one can Sell Put options up front.
A Put option is the right to sell the stock at a specific strike price on or before an expiration date.
If you are a put seller you are first, generating a premium or money into the account. You are then at risk of getting assigned that stock at that strike price.
That’s fine. You are actually good if the stock doesn’t get assigned and the option expires, and you keep the premium/money sold.
But, in the event you get assigned and have to take the stock you are then getting it at a reduced basis, (reduced by the amount of the premium sold from the strike price) and you now own the stock less than what was the current market price.
Let me show you what my video on this scenario has for the numbers on this situation.
You can see the option strike is the $175 Put and the options expiration is Jan. 19, 2024.
For one contract ‘sold to open’ it would generate $175.
I would then be obligated to acquire GLD at $175 anytime between the date sold and expiration.
Which would be good by me as the current market price was $177.15 and this would give me the stock below that price or $175. Not only that, but my basis would also be further lowered by the premium of $1.79 sold.
By selling the put option up front I give myself a great chance to not only acquire GLD but do so at a reduced price to current market value and I am getting PAID to do so.
Here are My Top 3 Rules when Selling Puts
- Sell Puts on Stocks you would want to own at below market prices
- Sell Puts on Stocks that have HIGHER than average Implied Volatility
- Sell Puts that give you a high statistical probability, the higher the better
My software www.tomsoptiontools.com has the Morning Reports feature which can find those options with high IV.
That lesson on Implied Volatility will be done at a later time, but the reason I like to sell puts with high IV is I have a better chance of getting paid more on those options than those with low IV.
Check out my YouTube channel and subscribe to get notices of when I post my most recent options education videos and market outlooks and my Power Profit Podcast with my friend Chris Johnson and maintain a consistent, quality level of options education for yourself.
YouTube Channel: https://www.youtube.com/@TomGentileTrader
App: Toms Option Tools
Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.
Disclaimers
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.