What’s This Put Selling Business All About?
A put option entitles the buyer to sell 100 shares of the underlying stock at the strike price on or before the expiration date. A put is in the money when the stock’s price is below the strike price. A put buyer is therefore bearish on the stock, hoping that the price will decline sharply so that his option appreciates substantially.
A put seller, on the other hand, is neutral to bullish on the stock and his goal is for the stock price to remain above the put’s strike price. If this happens, the option expires worthless and the put seller retains the entire premium received from the put sale. Another benefit for the put seller is that there is no commission cost to exit a winning trade when the option expires worthless.
We really like this strategy because it has a high success rate and is much more forgiving than straight option buying in that you can be profitable even if the underlying moves somewhat against your expectations. So let’s go over a few put selling tips that should help your bottom line.