Stock Investing Strategies

Stock investments


Selling Puts on Dividend Paying Stocks

Income investing involves buying dividend stocks which are consistantly paying off a nice monthly cash flow. But why stop there? By selling puts you can make money before you enter the security.

If you do sell a put you will be obligated to buy the stock at a certain strike price on or before some point in the future. So if you sold the $30 put on a stock and made $2 then you would be obligated to buy it at $30 should it fall below that price.

I know many of you have to be saying, why would anyone sell a put? You can either be forced to pay more than the price of the stock or you will miss getting into the stock entirely.

That’s true, however you do get to keep the $2 premium regardless of whatever happens. If the stock goes up you will not get called out, but that does free you up to make even more money by selling more puts. I have seen that consistantly selling puts can be even more powerful then buying and holding during the long term.

On the other hand if the stock falls down below $30 you would be forced to buy it. However, because you made $2 from the put you would have done a lot better then someone who would have simply bought the stock.

If the stock is a high dividend paying stock with unbelievable fundamentals and you don’t mind hanging onto it for a while then it can be fantastic. There is only one catch when selling puts, you must be both able and willing to buy the stock for the long term.

Personally I see this as a great way to get into a stock that I want to get into, and once I am in I can always start covered call writing to get even more money out of the equity.

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