Naked Puts

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Suppose you researched a company yesterday and decided that the stock would be a bargain at $50 per share. But when you look it up it’s selling at $52 per share, which you don’t think is a good bargain. You could tell your broker to put in a buy order, good until cancel, so if the stock goes down to $50 you’ll buy it.

But there’s a better way. Tell your broker to sell 10 puts at the August 50. This means that you collect a an immediate premium, perhaps $2000 or so, in exchange for the promise to buy 1000 shares of the stock if it goes down to $50. So instead of waiting around, you’ve got an extra $2000 to play around with. If the stock goes down, you’re only paying $48 per share since you already got a $2 a share premium. But if it doesn’t, you just keep the $2000. And that’s what they call naked puts. Learn more at Doubleyouryield.com.