Special Strategy to Earn Extra Premium
By Saghir Aslam
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Selling Puts is probably one of the highest yielding and best ways of making money. A put is the right, not the obligation, to sell a stock at a particular price. Selling Puts will allow someone to sell stock to you at a certain price. When the put is accepted, you must buy the stock at the price you offered which is the downside to this strategy. You must have the money in your account to buy the stock, but if it is a stock you want and price you would pay, you will make more money on the put and a higher yield from the sale of the stock. I love this strategy. I define this strategy. Buying stocks wholesale prices you can use this strategy on your best-known favorite stocks such as Disney, International Business Machine, Johnson & Johnson and many more others.
Let’s say a stock is around $14 a share. It has been up to the $18 or $19 range and has some temporary bad news. You feel this stock is going to go right back up to that $18, $19, and $20 a share. You could sell a put on this stock at $15. Let’s say you receive a $1.50 for doing so. If you are doing 10 contracts that would be $1,500 you would receive in you’re account. Now, by selling a put you have sold to someone the right to put that stock to you at $15. Now remember, you think this is an $18-$20 stock, so you don’t mind owning this stock and purchasing it at $15 a share.
Remember you sold the put for $1,500 and if you have to buy the stock at $15,000 your cost basis is down to $13,500 because you have already received $1.50 per option. If this stock goes up to $18 or $19 and you had it “put” to you at $15, it is just that much more profitable.
This is one terrific way to collect extra premiums. At times you can apply this strategy over and over again on the same stock. And what if the stock drops in price? You would end up with buying stock at a much cheaper price. It’s the stock that you wanted to own anyway.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, or does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)