Selling Puts on Dividend Paying Stocks
Dividends can be extremely powerful and can help an investor make money from a stock that they own. But why stop there? Simply by selling put options you can make money before you enter the security.
By selling a put on a stock you make money up front, but are then obligated to buy the stock at a certain strike price on or before a given date in the future. For example if you sell the $30 put on stock XYZ you may make say $2 from the put, but you would also be obligated to buy it at $30 should it go below that price.
I know many of you have to be saying, why would anyone sell a put? And rightfully so, after all you would either miss getting into the position or you would be forced to buy it at a higher price then it is currently trading at.
That’s true, however you do get to keep the $2 premium regardless of whatever happens. If the stock goes up then you will not get into it, but who cares when you can simply sell another put and make even more money. The consistency of selling puts alone can do much better than the simple buy and hold strategy at least from my experience.
On the other hand if the stock does go below $30 you would have to buy it at $30. However, because you made $2 from the put you would have done a lot better then someone who would have simply bought the stock.
If the stock is a high dividend paying stock with excellent fundamentals and you do not mind holding onto it, it can be a fantastic opportunity. The only catch is, you have to be willing and able to buy the stock if you do get put the stock.
Personally I love this strategy because it lets me get into good quality stocks and get into positions where I can start covered call writing to pull even more money out.
