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Strategies & Market Trends : Low Risk Low Stress Options Strategies
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To: seminole who wrote (11)1/8/2001 11:38:31 PM
From: the options strategist  Read Replies (1) of 29
 
Richard,

<The stock trades at $17 1/2 and has a price range of $10-54 this year (volatile, IMO).
I would buy this stock at $20 based upon my research and four years of progress by the company.

I could sell a July put with a strike price of $20 and receive $5 1/2.

Why should I not sell ten Puts?>
<If I am wrong and the stock/market continues down,
I would end up buying the stock at $20 with a real cost of $15.>
<If I am wrong about the direction of the stock,
is it not still better to buy in July for $15000 net than to buy now for $17500?>

1. I am partial to selling puts for income especially if I'm willing to purchase the stock if it goes south. Since you are willing to buy the stock at 20 I see no reason why you can't take in $5.50 for a stock that you want.

If your stock goes up, you can buy back your short option and make a profit before July, i.e. the stock goes up and your short put goes down to $2.00, you can buy back and make $3.50 per contract and write another put.

However, if the stock goes down and you get put the stock you will have it for $14.50. Not a bad price since you are willing to pay $20 for it anyway.

<If I am right, my very large position in the stock will do well
plus I would receive cash from the options.
What am I missing? I have never done an option.>

I don't see that you are missing anything unless you just want the stock now.

If the stock trades in a wide range of 10 to 54 you may just want to purchase the stock at 17.50 to catch the upside if you are bullish the stock.

So you can buy stock now or sell puts and buy stock later (or make cash while trying to buy it).

jj
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