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Monday, 20 August 2012

Make Money Online By Trading Put Options

By Dale Poyser


The stock niche is certainly one of the very best in terms of accepted procedures to make money.

Inside the securities sector a very very rewarding solution to build up money is options trading. I personally make 15 t0 20% just about every month by trading options, more specifically put options.

Generally there will be two different facets to put options trading.

There is the actual facet relating to protective cover on ones balance also known as getting insurance for your stock, and then there is the wealth building, monthly cash flow side aka getting paid to own a stock. Why don't we have a quick peek at both of those.

Buying Insurance with Put Options

As the owner of this put options contract, there is an "option" to be able to offer the stock which has a certain price until you sell the particular option or perhaps the particular option expires.

A lot of investors use puts to protect their accounts from big movements to the downside as well as to lock in profits.

For instance, let's imagine a trader bought a stock and it increased in price by about $10 per share. This is definitely a substantial move.

Now the question you might be asking is...should you take profits or let it ride? In addition, you need to take into account that should you choose nothing, your earnings could be destroyed in minutes with some not so great. Taking absolutely no action is probably the most detrimental actions to take within the stock market.

So What do you do in that situation?

You may buy a put option with a strike price which is a number of prices below the current price of the stock. By doing this, it will be possible to sell your stock at this strike price regardless of what happens to the cost of the actual stock. For example, if you acquired the stock at $200 and it went up to $250, you can actually purchase the put at $240. With the $240 put option, regardless of how low the stock goes, you can still sell it at $240! So, if the stock drops to $30 per share, you can STILL sell it at $240, think about that for a second...let it sink in.

Making Monthly Passive Income with Put options

On the other side of this put options coin is the way you possibly can create wealth by using options through passive income each and every month.

In order that the stock buyer to shield his stocks by purchasing protective puts, he will need to have someone ready to sell those put options to him.

I generate an income each month by simply selling put options against stocks I might be willing to own and sometimes even against stocks that I never plan to own.

The key to building wealth with put option selling will be to sell puts on stocks you will not mind having and also seek out stocks which are relatively flat with regards to their price goes. Flat stocks tend to be stocks that move no more than $3 within a four week period and also have minimal PE ratios.

I've found that I also have a substantial amount of success through stock trading inside the $20 - $30 price range. Anything higher as well as cheaper tends to be too risky if you ask me.




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