|
Since 2003, our company has operated the stock picking discussion community
ValueForumTM, where members gather each year for an event we call
InvestFestTM. Both online and at these events, stock options are consistently a topic of
interest. The
two most consistently discussed strategies are: (1) Selling covered calls for extra income, and (2) Selling puts for
extra income.
The Stock Options Channel website, and our proprietary YieldBoost formula, was designed with these two strategies in
mind. Each week we put out a free newsletter sharing the results of our YieldBoost rankings, and throughout each day
we share even more detailed reports to subscribers to our premium
service.
On the CALLS side of the options chain, the YieldBoost formula looks for the highest premiums a call seller can
receive (expressed in terms of the extra yield against the current share price — the boost — delivered by
the option premium), with strikes that are out-of-the-money with low odds of the stock being called away.
On the PUTS side of the options chain, the YieldBoost formula considers that the option seller makes a
commitment to put up a certain amount of cash to buy the stock at a given strike, and looks for the highest premiums a
put seller can receive (expressed in terms of the extra yield against the cash commitment — the boost —
delivered by the option premium), with strikes that are out-of-the-money with low odds of the stock being put to the
option seller.
The results of these rankings are meant to express the top most ''interesting'' options identified by the formula,
which are meant as a research tool for users to generate ideas that merit further research.
|
|
|
Selling Puts Against Cash For Income By Stock Options Channel Staff
« Back to Page 1 | Page 2 of 2
For instance, someone who bought the stock years ago at 5 and is now sitting with an unrealized gain may want to
protect that gain by purchasing the option to sell their shares at 10. Someone purchasing the stock today might want
to hedge their bet by capping the amount of money they can potentially lose. Or someone might think the future looks
bleak for the stock and want to make a straight out bet that the stock will fall (if the stock trades above 10 now,
but it falls to 5 from 10 in the future, they can make a lot of money buying the put option today at the 10 strike
which would then be 5 dollars "in the money" if the stock were to fall to 5).
Hopefully by now the idea of selling a put is starting to make some sense, as compares to placing a limit order to buy
a stock. One important difference is that if you were to place your buy order at 10.01 and the stock falls below 10
tomorrow, you will have gotten your fill and you now own the stock. But if you sold the 10 strike put option with an
expiration date off in the future, you don't automatically own the stock now that it has traded below 10. Because
remember, the person who paid you for your commitment to buy at 10 has the option to "exercise" that contract
(and sell the stock to you at 10) but still has all the way until the expiration date to do so. If the stock is still
below 10 at the expiration date, then they would be much better off selling to you at 10 than taking the market price,
and the stock will appear in your brokerage account after expiration date. But if the stock rebounds above 10 and
remains above 10 at expiration date, then they are much better off selling at the market price. In that scenario, you
won't own the stock, but you will still have received the premium collected in the beginning.
Within the pages of Stock Options Channel having to do with put options, you will see the term "YieldBoost" which was
designed to express the premium a put seller can receive in terms of the extra yield that premium provides against the
cash commitment to buy the shares, in the scenario that the option expires worthless.
Using the box labeled "Enter Symbol" at the top of the Stock Options Channel website, you can input a stock ticker
symbol, and click the "Get Options Chain" button to see what options are available for that symbol. The various
expiration months will be listed, along with links to view options chains designed with selling puts in mind (also,
selling calls for income). Clicking one of those links for the puts will
bring up a table showing the different strike prices available, and will show the current bid (the premium a buyer is
currently willing to pay you to sell them a put), the YieldBoost that bid represents (both total and annualized), the
current ask, last trade, today's volume, the total open interest, a technical-analysis calculation of the current odds
the contract will expire worthless, and finally the cost basis if you were to sell the put and end up owning the
stock (in options jargon: "if you are put the stock").
The "odds" calculation is entirely an automated technical analysis (as opposed to a fundamental analysis) of the
underlying stock, using purely the observable quote data both past and present, including some fancy terms known as
"the greeks" (delta, gamma, vega, and rho). No fundamental business-level data for the company itself is considered,
and observable market data past and present is never a guarantee of future price movement. So this is presented
merely as a research tool investors can utilize in combination with other forms of analysis.
We also apply our YieldBoost formula to a ranking system that scours the options market for those contracts with the
highest YieldBoost a put seller can receive, with strike prices that are out-of-the-money with low odds of the stock
being put to the seller (the results of this ranking system are meant to express the top most ''interesting'' options
identified by the formula, which are meant as a research tool for users to generate ideas that merit further
research).
Each week we put out a free newsletter sharing the results of our YieldBoost rankings, and
throughout each day we share even more detailed reports to subscribers to our premium service, but any site visitor can browse through some of
these lists under the YieldBoost Ranks tab at the top of the website, where ranks are presented by
industry, as well as featured slideshows containing the top YieldBoost options of the Dow Jones Industrial Average
components, the S&P 500 components, and certain high-yield sectors including Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs). Some
other interesting slideshows are featured as well, such as top YieldBoost options of stocks with recent secondary
offerings, stocks conducting share buybacks, and stocks with recent insider buying.
We hope you have found this page educational and useful, and we thank you for visiting Stock Options Channel. A
reminder that market data is inherently error prone, and none of the information presented on our website should be
considered to be free of errors or relied upon for any investing decisions. None of the information contained herein
constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable
for any specific person. Please read our full disclaimer statement.
« Back to Page 1 | Page 2 of 2
|
|
|
Commit To Buy Omnicom Group At $75, Earn 24.3% Annualized Using Options 13 hours, 25 minutes agoCommit To Buy State Street At $55, Earn 5.8% Using Options 13 hours, 25 minutes ago Commit To Purchase Kenvue At $15, Earn 5.7% Using Options 13 hours, 25 minutes ago
Commit To Purchase NovaGold Resources At $3, Earn 31.4% Annualized Using Options 13 hours, 27 minutes ago Commit To Purchase Lindblad Expeditions Holdings At $5, Earn 14% Annualized Using Options 13 hours, 27 minutes ago Commit To Buy LivePerson At $0.50, Earn 39.9% Annualized Using Options 13 hours, 27 minutes ago Commit To Buy Community Bank System At $20, Earn 15.7% Annualized Using Options 13 hours, 27 minutes ago Commit To Buy TPI Composites At $2.50, Earn 48.4% Annualized Using Options 13 hours, 27 minutes ago Commit To Buy ACELYRIN At $2.50, Earn 25.2% Annualized Using Options 13 hours, 28 minutes ago Commit To Buy ModivCare At $15, Earn 17.8% Annualized Using Options 13 hours, 28 minutes ago
More articles »
|
|
|