CNBC reports that Warren Buffett just made a HUGE $3.17 BILLION gift to the Bill & Melinda Gates Foundation (and four other non-profits).
While most folks think Warren got rich with simple “buy and hold” investments…
He’s made a large fortune with these special income trades.
Just like the Oracle of Omaha, I’m not trading options with the goal of swinging for the fences (although I’ll hit my fair share of home runs).
And I’m certainly not planning to get rich from any single trade.
Nope! I just make a few simple trades every month to collect more income from the market’s safest stocks.
You can, too . . .
If you’re looking to make 5x or 10x your money in the next month, this is definitely NOT for you.
One of my favorite strategies is known as Selling Puts. And it’s a simple income strategy that Berkshire Hathaway’s Warren Buffett has consistently used.
Buy Stocks at Discount
It’s a simple way to BUY stocks at a DISCOUNT to the current market price… Plus, you could earn more income on every trade.
So why aren’t more investors selling puts?
Well, probably for the same reason that you feel uncomfortable about the thought of selling puts right now. But I know that if you just try it once, you’ll never buy stocks the same way again.
Once you learn how to use this strategy, you’ll begin to see the world of finance differently. Instead of “paying” people to invest your money, you get paid to invest.
Selling puts is the best way to buy the stock or exchange-traded fund you have been eyeing for a much lower price than the current price.
When a stock or ETF’s price is inflated, most investors enter a buy limit order for the security at a lower price. Yes, they sit and wait and wait … and wait some more.
In most cases this goes on for months with nothing happening other than lost opportunity costs. In fact, it’s been shown that more than 99% of all investors do it this way.
But by selling puts on a stock that you wish to hold in your portfolio you could be collecting income, thereby lowering the cost basis of the stock even further.
Selling a put option means that you are obligated to buy 100 shares of the underlying security at the strike price if the buyer so chooses prior to the expiration date. This, of course, won’t happen until the stock price drops below the strike price.
This is where you – the put options seller – comes in. Since you want to own the shares (albeit at a lower price), you sell a put option and just wait until options expiration. Or maybe, you just wish to use a stock you like to bring in steady, reliable income without taking on the capital associated with owning the stock.
Either way, if the underlying issue closes above your chosen price (the strike price), the put expires worthless and you get to keep the entire premium collected at the outset.
If the underlying issue closes below the strike price, you will be put (assigned) the stock or ETF that you wanted. In other words, you will be obligated to buy the shares at the strike price. You now own the stock you wanted – at the lower price you were willing to pay.
Just think how much you could reduce your cost basis if you did this for months.
Everyone knows you’re supposed to buy low and sell high. This advice is so common and so basic. And yet, almost no one talks about how to buy low – let alone how to sell high.
Selling Puts in Basic Terms
Here’s how selling puts works (in very basic terms).
Back in mid-March, I wanted to BUY shares of United Continental (NYSE: UAL).
Shares were at roughly $72. And the blue-chip stock was ABOVE my desired purchase price of $65. My goal was to buy 100 shares of the stock at $65 for a total cost of $6,500.
Under normal circumstances, while I waited to get in at $65, my capital would sit idly on the sidelines making next to nothing. But if I sold puts at the strike price of my choosing ($65 in this case), I’d get paid while we wait
So, I did just that by selling a put option with a strike price of $65 that expired in two months for $1.47, or $147 per contract (one option contract equals 100 shares), for a 2.3% return in roughly 56 days.
Now, I did a similar transaction three additional times over the past four months for a total return of 5.8% income. And I plan on doing this same transaction into perpetuity, assuming that the stock price remains above our strike price.
Of course, if I end up buying the shares at the strike price, I’ll own the stock at the strike price minus the total premium I’ve have managed to sell over the past four months
This is why professional options traders prefer to sell puts. They know that if done correctly, the strategy lowers your cost basis and provides the potential to own a stock for significantly less than its current price.
— Andy CrowderMy #1 Stock to Buy Now [sponsor]
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Source: Wyatt Investment Research