In the Income Generation, I’ll show you how to write your own cheque every month! People are using this exact strategy to double their investment accounts in less than a year. This is not some high-risk, speculative strategy. But many people will tell you Selling Option is very risky. I will attempt to explain to you why Selling option is one of the easy and best strategies to generate income month after month with less risk. The Risk of selling an option is ended up owning the stock at a discount price. When we sell an option, one of the conditions is we want to own that stock if it is put to us at a discount price and not at its current high price. We do not mind owning the stock If we have to. That is the only risk! How could this be a risk when already we want to own this stock!
You Buy the Stock you want to own at Discount and not at its current high price!
There are 2 ways to invest in Stock. The first is to buy the stock you like at its current price. For example, Let’s say, you want to buy IBM stock. But the current price of IBM is trading at USD 126. You can either buy the IBM for $126 now. Or you only want to pay for $115 for IBM. So, you can wait until IBM drop to $115, then you buy the stock.
Instead of just waiting for IBM price to drop to $115. then you buy. You can actually sell a Put option on IBM now and collect a premium of $2.29 with 16 Aug expire.
In another word, if you sell 10 contract IBM with Strike price $115, with 16 Aug as the expiry and meantime collect $2.29 as your premium. You just write your own cheque of $2.29 x 1000 shares(1 contract = 100 shares)= $2,290. This money immediately credits into your account.
You buy the stock you like to own at discount and collect the premium
If the IBM price did not come lower than $115 by 16 Aug, you keep your $2,290 and sell another premium. You will keep doing the something until the day when IBM price drop below $115. Then you are obligated to buy IBM at $115 which is the price you already prepare to buy and it is buying at discount. You are not paying $126. If anyone told you selling option is risky, this is the risk – the risk of buying IBM at discount.