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Timing the market has proven to be very difficult if not altogether impossible. However creating opportunities to artificially accentuate further downward movement in a given stock one is looking to own is possible. If a stock of interest has substantially fallen yet not enough to pull the buy trigger, then one has an option to “buy” the stock at an even lower price at a later date while collecting a premium in the process. This is called a covered or secured put option. Leveraging covered or secured put options in opportunistic scenarios may augment overall portfolio returns while mitigating risk when looking to initiate a future position in an individual stock. Options are a form of derivative trading that traders can utilize in order to initiate a short or long position via the sale or purchase of contracts. In the event of a covered put, this is accomplished by leveraging the cash one currently has by selling a put contract against those funds for a premium. Traders may also initiate a short or long position via the purchase of option contracts to the underlying security. An option is a contract which gives the buyer of the contract the right, but not the obligation, to buy or sell an underlying security at a specified price on or before a specified date. The seller has the obligation to buy or sell the underlying security if the buyer exercises the option. An option that gives the owner the right to buy the security at a specific price is referred to as a call (bullish); an option that gives the right of the owner to sell the security at a specific price is referred to as a put (bearish). I will provide an overview of how a covered put is utilized and executed. Further details focusing on optimizing cash leverage (covered puts) and the ability to sell these types of options in a conservative way to generate cash while initiating positions in one’s portfolio will follow. Continue reading "Using Covered Puts To Trade Options" →