djmeen95 said:FJ43 said:CPDAggie10 said:
I feel like I sell $5 puts on WWR every time it has a down day. Feb, March, April, May. Give me them all!
Agree. Sold a bunch of a May $5 puts late last week on the dip. Too much fun.
Ok. So still getting confused on calls and puts.
In the example above, let's see if I get this... you own WWR stock?
As the price drops, you sell $5 PUTS on a portion of your holdings. Which means someone pays you a fee (which you pocket immediately) for the right to sell some of your shares at a $5 price point?
Which means they then have to also pay you $5/share for those stocks? Or they give you back the stocks they sell?
There's where I get lost.
Because if the cost of the shares never hits $5, then.... what happens?
You keep the premium and everyone walks away and you keep the shares?
Sigh - I'm pretty sure I got that wrong.
Really struggling with this concept.
The put side is the opposite of the call side. Think of it this way.
Whomever pays the premium holds the cards. They have the right to buy the stock (long calls) or sell the stock (force the sale puts side) at the agreed strike (price) of the contract.
When you buy calls you pay the premium so you have the right to those shares if you choose to exercise them. The guy you paid for that right keeps the premium.
When you sell calls the guy pays you for the premium and right to buy your shares and you keep the premium.
The put terminology is opposite. When you sell puts you are receiving the premium but the obligation to buy the shares. The buyer bought that obligation from you and may or may not hold you to it. You keep the premium whether he does or doesn't.
When you are the buyer of the put you are paying the premium to the seller and locking them into the obligation to buy your shares at a price.
Selling puts is a way to get premium now and either keep it if the stock price rises (they likely won't force the sale to you) or you buy the stock at the price of the strike. The key here is if you have to buy them your happy to since the strike price less the premium you've been paid is an attractive entry point.
Does that help?