The right way to buy shares? Write a Put

(Also see – the right way to sell your shares – write a covered call)

Say you are bullish on a stock – but it’s far too high for your taste. You would like to buy it at a more reasonable price.

You could of course, place a limit order – good till canceled – which would automatically BUY your shares once the target price (your set limit price) is reached.

However, there is another, yet more profitable way to achieve this purchase.

Sell a PUT

While you are waiting for your target price to be reached, you would actually make money.

Through something called selling a put (or writing a put).

Say – TSLA is at $400 and you would like to buy 100 shares of TSLA, provided they fall to $300.   Say you are overall bullish, but just waiting for a drop buying opportunity. Let us call your desired price ($300) the strike price.

You would WRITE a PUT that allows you to BUY a 100 shares at the Strike Price ($300).

Now, when you write this put, you get paid right there and then (it’s called the option premium). So – you would have made some money right off the bat.

And if the stock reaches $300, you would have automatically exercise your option to buy at $300.

What’s the Downside?

The only downside is that if TSLA were to never reach $300, you would be left with zero shares. The other downside is if the shares were to fall waaaaay below $300, well – you just committed to buying at $300!

Still – it’s pretty neat that you can earn money (the option premium) while waiting for your target price to purchase the shares.