If you have extra cash in your brokerage account, you can make money on a monthly basis by selling cash secured puts. When you sell a put, you give someone the right to sell to you stock at a certain price called the strike price. In exchange for giving them this right, you receive a premium which will vary depending upon the volatility of the stock and the length of the contract. Sometimes an upcoming earnings announcement will also influence the amount of premium for the put option.
Things You'll Need
- Brokerage account approved for selling puts
- Available cash in the brokerage account
Identify a stock that is in a well defined uptrend with an identifiable line of support. Alternatively, you could identify a stock that is trading sideways, but it should have clear levels of support.
Make sure that the stock has options available. If not, you will have to repeat step 1 until the stock you have identified has available options.
Identify the price of support for the stock that you have selected. The price may not be an exact price but rather a narrow range within a percentage point or two.
Look at the options table for the stock and find a strike price that is near the support price that you have identified. The strike price should be either just above or just below the support price.
Look at the options expiring within the next 30-45 days. When selling puts, you want to sell the nearer term options so that you are not exposed to market risk for longer periods of time. You don't want to give the trend time to reverse itself prior to making your profits.
Sell the put option that you have identified using a limit order making sure that you have enough purchasing power to fulfill your obligation to purchase the stock should it decline below the strike price. Collect the premium.
Tips & Warnings
- Keep the put options as near term as possible which will help minimize your exposure to market events.
- Shoot for 2-5% monthly gains which are enough to make it worthwhile but not so much as to make the technique unduly risky.
- Don't try this during a bear market as you could be forced to purchase stock for a much higher price than it is currently worth. Most stocks eventually decline during a broad based bear market.
- Don't sell puts just prior to an earnings announcement.
How to Make Money with No Money
Making money with no money to invest presents you with a difficult, but not insurmountable, challenge. If you possess or can borrow...
How to Put Ads on a Website to Make Money
Running advertisements on your website is one of the most successful methods of generating revenue on your site. Many companies and marketers...
How to Use Puts & Calls
Puts and calls are both options to sell or buy an asset in the future. Most commonly, these options are used with...
How to Buy and Sell Puts in the Stock Market
An option is a contract that gives the buyer the right to purchase the underlying asset (call) or to sell the underlying...
How to Sell Royalty Free Illustrations
You can make money from illustrations either by creating them yourself or buying illustrations from an artist at a fixed price and...
Strategies for Selling Deep Out of the Money Put Options?
Selling put options can bring a steady stream of income into your brokerage account. Put selling is a strategy suited to a...