Selling puts to enter?

S

spinn

This is probably a very basic question but I cannot get my head around it. I am looking at a stock now currently priced at $19 that I think will go higher over the next year or so. I am new at this but see January $10 puts selling at 0.30 cents. I am confused as to what put I would want to sell to enter this trade. $28 puts are selling at $10. What should I be looking at to get long if it moves in my favor?
 
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Puts are like car insurance. If you crash your car you PUT it to the insurance company who has sold the policy and you receive the before crash value as you bought the put. If you think the market is going up buy calls or sell puts but you are limiting profit potential by selling puts.
 
ZBZB said:
Puts are like car insurance. If you crash your car you PUT it to the insurance company who has sold the policy and you receive the before crash value as you bought the put. If you think the market is going up buy calls or sell puts but you are limiting profit potential by selling puts.
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My question was, which Put should I sell if it goes up and I want to be long?
 
spinn said:
This is probably a very basic question but I cannot get my head around it. I am looking at a stock now currently priced at $19 that I think will go higher over the next year or so. I am new at this but see January $10 puts selling at 0.30 cents. I am confused as to what put I would want to sell to enter this trade. $28 puts are selling at $10. What should I be looking at to get long if it moves in my favor?
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28P is 9 points in the money. 28C is $1. Selling the put and buying the call = shares. Your share proxy is only paying an additional dollar over going long shares outright, but your gains are limited to the $10/share. The Jan 10P are only going to net you $30/contract ($0.30 per share) if held to expiration.

If you're intent on buying at least 100 shares and want the additional time value ($1) while giving up any gains above $28/share, then short the 28P.

Generally you'd want to go ATM if you want the greatest sensitivity (to vega, gamma, etc.) as previously mentioned. If you want more notional gains, go as deep in the money as you're comfortable, but realize that as you go deeper ITM the time value is inversely proportional. IOW, there is no benefit to shorting puts and you're capping gains.
 
you want to be long the stock....

BUY THE STOCK.

If you are new at this, I am wondering why you are not just looking at buying the stock rather than use short puts for a limited reward, significant loss position. Your outlook is for a year, so buy the stock and set and forget.
 
Depending on the stock, why not sell the weekly puts $2 out of the money and just keep doing that until you get lucky on a dip. Eventually you'll get the stock, pocket the premiums in the meantime. Probably not that much though, like I said, depends on the stock.
What stock is it?
 
destriero said:
28P is 9 points in the money. 28C is $1. Selling the put and buying the call = shares. Your share proxy is only paying an additional dollar over going long shares outright, but your gains are limited to the $10/share. The Jan 10P are only going to net you $30/contract ($0.30 per share) if held to expiration.

If you're intent on buying at least 100 shares and want the additional time value ($1) while giving up any gains above $28/share, then short the 28P.

Generally you'd want to go ATM if you want the greatest sensitivity (to vega, gamma, etc.) as previously mentioned. If you want more notional gains, go as deep in the money as you're comfortable, but realize that as you go deeper ITM the time value is inversely proportional. IOW, there is no benefit to shorting puts and you're capping gains.
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You just scared the hell out of him. He'll probably never come back. lol
 
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