Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.


These contrarian stocks thrive in good markets and bad

These contrarian stocks thrive in good markets and badIn my new profit guide, I reveal a group of super-safe stocks that don’t behave like regular stocks during market downturns. In fact, these rock-solid beauties historically SKYROCKET and THRIVE during the worst of times. During the last three market busts, stocks in this contrarian sector soared 42%… 135%… and even 200%. Do yourself a favor. Check out my free profit guide today.


Earn Income While You Wait for a Pullback

By Scott Chan on March 12, 2018

Last week, we discussed writing (selling) covered calls as a way to try to boost the return in one’s portfolio. This week, we take a look at another way to use options to earn extra income.

Despite volatility over the past month, the market is still near all-time highs, so chances are good that most investors have at least a stock or two that “ran away” but they still want to buy if the price dropped. The strategy that we are about to discuss is especially fit for this scenario.

We are referring to writing a put.

The Basics

When you write a call option, you are selling to the option buyer the right to buy a stock from you at a specified price. In the case of writing a put, you are selling to the option buyer the right to sell to you, per contract, 100 shares of the underlying stock at the strike price on or before the option’s expiration date.

The premium you get for selling the option is yours to keep no matter what. If the stock price remains above the strike price, then the option will simply expire worthless because it would make no sense for the holder of the put option to sell the stock to you at a below-market price.

On the other hand, if the stock falls below the strike price, the put holder can sell the stock to you at the above-market strike price.

Cash Securing Your Position

Because you may have to buy the stock at the strike price, when you sell a put it’s best to set aside enough cash in your account to cover the potential purchase. This is called a cash-secured put. There’s a good chance your broker will automatically set aside the appropriate amount of buying power anyway.

That brings up a drawback to put writing. For as long as the put option position is open, the cash set aside to secure the put is locked up, so you cannot deploy it elsewhere. Therefore, this strategy is not for the aggressive investors who like to squeeze every penny out of their buying power.

Rather, put writing fits better for more patient investors who don’t mind keeping some powder dry. Additionally, it makes sense to sell puts against stocks you like. As we mentioned above, if there is a stock you like but you think it’s overpriced now, selling a put against that stock can earn you income while you wait for the stock to pull back.

Let’s Use An Example

For example, let’s say stock XYZ is selling for $30. You like the stock a lot but you don’t want to buy it unless it fell to $25. In this case you can sell a $25 put.

The premiums is yours to keep no matter what. And if the option is exercised, you buy the stock at a price you would have bought it anyway. And remember, you come out ahead as long as the premium is greater than the difference between the strike price and the market price.

So in the above example, if you sold the option for $1 and XYZ is trading at $24.50 when the option is exercised at $25, your effective cost basis is $24 per share ($25 strike price minus the $1 premium). So you effectively still bought the stock at a lower price than if you bought it in the open market. (For simplicity, we are ignoring commissions and fees in the calculation.)

If you decide that put writing fits your investment goals, check with your broker to see what the option-level clearance and margin requirements are. Each broker’s requirements can differ.

You might also enjoy…


Obscure Tax Law Forces This Company to Pay Out 90% of its Profits

A 50-year-old loophole is forcing one company to pay out $9 of every $10 it makes from ironclad contracts with the U.S. Government.

In fact, over the past seven years, it’s made payments ranging from a few dollars… to tens of thousands of dollars… 30 times. Without a single cut! 

Most folks don’t even know this company exists, but the ones that do are making a mint.

Like Ted B., who’s set to receive a check for $1,096 just a few days from now.

Merrill H., a 58-year-old from New York, has collected over $3,385 so far. 

And retirees Beth and Terry P. have raked in $16,555.

I’ve put together a special report that will give you all the details, including simple instructions on how to get your name on the payout list before the next cutoff date.

You can get your copy here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.

Stock Talk

  1. avatar
    Guest User Reply March 22, 2018 at 12:45 PM EDT

    Is my membership have access to this service