Selling a put obligates investors to buy more stock should the stock price dip below the put's strike price.
If the stock market plunges lower—and two major macro-economic events will occur in the next few weeks—put sellers could be buying stock at sharply lower prices.
Selling call obligates investors to sell their stock should the stock price rise above the call's strike price.
If the stock market plunges, and the stock never rises above the call's strike price, the money received for selling the call is like an extra dividend payment.
In fact, the money received for selling puts or calls and buying stock can be thought of as conditional dividends. If the stock doesn't cross the strike price of the put or call, investors can keep the money.
If the stock market plunges, and the stock never rises above the call's strike price, the money received for selling the call is like an extra dividend payment.
In fact, the money received for selling puts or calls and buying stock can be thought of as conditional dividends. If the stock doesn't cross the strike price of the put or call, investors can keep the money.
Another strategy rising in popularity is the "risk reversal." By selling a put with a strike price that is below the stock's price, and buying a call with a strike price above the stock's price, many investors are finding they can get paid by the options market to speculate on stock prices.
If the stock surges higher, moving past the call's strike price, investors can sell the call bought for free at a profit. If the stock price declines below the put's strike price, investors are obligated to buy the stock.
The key in these options strategies is to use them only on stocks you want to own. If the stock pays a dividend, even better.
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