Selling a put option in a BULL market – with Microstrategy (MSTR) as an example

Trying to BUY MSTR   – Selling a put option 

MSTR is a runaway train. Once that stock starts going, it is hard to catch it. So – how does one still purchase it a lower price?

Write a PUT option!

Put sellers (writers) have an obligation to buy the underlying stock at the strike price. The put seller must have either enough cash in their account or margin capacity to buy the stock from the put buyer. 

This works if you ACTUALLY WANT TO BUY the stock at a LOWER price. Keep in mind that in the bull trend, this may never happen. So – you still win though – by pocketing the premium (which is yours as long as the stock stays above the strike price).

Put sellers generally expect the underlying stock to remain flat or move higher. Put sellers make a bullish bet on the underlying stock and/or want to generate income.  

Stock FALLS BELOW THE strike Price?

If the stock declines below the strike price before expiration, the option is “in the money.” The seller will be put the stock and must buy it at the strike price. 

Stock STAYS ABOVE THE strike Price?

If the stock stays at the strike price or above it, the put is “out of the money,” so the put seller pockets the premium. (Note – you can keep continuing this strategy – by writing another put on the stock, to generate  more income). 

Bull Market Comfort

In a bull market, stocks like the one above (MSTR) seem to follow an almost uninterrupted uptrend. This is good for a PUT writer who wants to a) Get some income b) Catch the stock at a lower price , if it does ever fall.

Note that this sense of comfort does not exist in an overall BEAR market.

Covered Calls to generate income?

If one owns the underlying stock, one can also generate income by writing a CALL – a covered call – which is COVERED by your underlying asset. This means that if the stock ever reaches the strike price of your call option, you WILL have to give up your stock. Still – in a bull market, the chances of the stock falling enough to get to your strike price (pick a LOW strike price), is considerably low. Hence, this strategy works too (for income generation). Personally, I am averse giving up ANY good stock in a BULL market, so I stick to the first option (WRITING a PUT).