Put Selling to Acquire Stock Cheaply

Put selling to acquire stock cheaply is one of the best concepts to come along in a long time. If you're like most stock investors, you would like to buy your shares cheaply and sell them at a profit when they become expensive. This is summarized in the adage "Buy Low and Sell High". We can improve on this adage by being paid to do it by selling puts.

How is this done? First, you need to identify some stock issues, preferrably blue chip issues, that you want to acquire and hold in a core portfolio. You might be thinking of high-quality dividend paying shares, or even ETF's. Second, you need to identify the price at which you want to own the stock. Usually, this is less than the current price. Third, check the put options for that stock at the strike price equal to the price you are willing to pay for the shares. You may find that puts several months out have reasonably high values. Finally, sell puts at that strike price, receive your premium, and wait to see if you are put the stock at your specified price.

Put selling to acquire stock is the same as enetering a limit order to buy shares but, in fact, one better. In this case you get paid to wait for the price of the shares to come to you. Remember, one put contract equals 100 shares of stock, so do not sell more puts than the equivalent number of shares you wish to own. That way, if you are put the shares, you have acquired only the amount you wanted to own and no more.

The real beauty of this technique is that you are paid, sometimes repeadly, to wait for the lower prices you want. Income flows into your account. You can't do that with a limit order alone. It's really a super technique!