How To Build A Multimillion Dollar Options Trading Business… With Other People’s Money!
[SUPER MEGA IMPORTANT WARNING: This article is for entertainment purposes only. There will be specific stocks discussed below, and these are merely being used to illustrate examples. Nothing here is financial advice]
The more you learn about finance, the more you realize that there are many ways to simply conjure money from thin air. Selling cash secured puts is one example of this.
Puts selling is an options trading strategy where you predict that a stock will not fall beneath a certain price before a specific date. You collateralize the amount of money needed to buy 100 shares of this stock, at the price you’ve selected, and you are paid a premium for doing so.
If the stock stays above the price you’ve selected, your money is returned to you, and you keep the premium as profit (actually, you get to keep the premium no mater what).
If the stock falls below the price you picked, your money is used to buy 100 shares of this asset.
Now here’s the kicker. If — and from personal experience this doesn’t happen often — you do take on the 100 shares, you can still make money off of them by either selling covered calls or holding for dividends / capital appreciation.
But that’s not all.
You can sell cash backed puts on margin, and the margin interest does not activate unless you get your contracts called. In other words, you can trade ultra-conservative and low-volatility stocks “on the house” while still collecting their options premiums.
On top of this, interest rates are at historical lows. So if a contract does get called, you end up with an annual interest rate of 1–3%. That’s a pretty low barrier to clear, and these costs are easily covered if you place a few smart covered call trades.
Easy money, with no interest on uncalled options contracts, means that anyone can build a multimillion dollar puts selling business.
Allow me to explain.
If you have a stable, conservative investment portfolio of $100,000 or more, 0% margin allows you to sell weekly puts on relatively low-volatility blue chip stocks.