Should You Sell Put Options?

The stock market is in a weird place.

While many companies have fallen in price, they still aren’t cheap. And it doesn’t seem like you’re getting a particularly good value on most businesses, especially as broader economy slows down.

Selling put options is one way investors get “paid to wait” during sideways markets.

In this article, I’ll explain why you may, or may not, want to sell put options. And, I’ll share some qualities to look for if you decide to use this strategy.

What Is A Put Option?

A sell-side put option is a special contract where you collateralize a certain amount of money (enough to buy 100 shares of a particular stock, at a particular price). And in exchange, you are paid a premium on your money.

If, by a specific day, the stock falls to, or below, the price point that your put option contract dictates, you buy the 100 shares.

If the stock stays above that price point, you get your money back.

That sounds complex and confusing, so here’s a simple example:

• You sell a $60 Coca-Cola put option that expires on February 24th.
• The contract pays you $85.
• In exchange, you collateralize $6,000.