Selling Puts on Dividend Paying Stocks
Dividend stocks allow an investor to make money from the stock market month after month. But why stop there? Simply by selling puts an investor starts the trade off right by already making money before even entering the position.
What happens when you sell a put is that you are obligated to buy a stock at a certain strike price by a certain date. For example if you sell the $30 put on stock XYZ you may make say $2 from the put, but you would also be obligated to buy it at $30 should it go below that price.
Now some of you may be thinking, why on earth would I want to do that? You can either be forced to pay more than the price of the stock or you will miss getting into the stock entirely.
While that is true you do keep the $2 you made from selling the put. If the stock goes up you will not get called out, but that does free you up to make even more money by selling more puts. The consistency of selling puts alone can do much better than the simple buy and hold strategy at least from my experience.
On the other hand if the stock does go below $30 you would have to buy it at $30. But because you got the $2 premium for the trade you would have done much better than simply buying the stock in the first place.
Also if the stock is a nice high dividend paying stock with excellent fundamentals and you do not mind holding onto it, it can be a fantastic opportunity. The only catch is, you have to be willing and able to buy the stock if you do get put the stock.
Personally I love this strategy because it lets me get into good quality stocks and get into positions where I can start covered call writing to get even more money out of the equity.
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