TipSheet #7 - How to get your Free Money...

Picture this...
You're at your favorite shopping mall hunting down that perfect birthday gift for your spouse and you see a sign that says: FREE MONEY - TAKE SOME. There's a box of cash waiting for people to reach in and take all they want, but most of the shoppers just stroll by in a daze. Every now and then someone reaches in and pulls out a fistful of cash, but most just pass by. Wouldn't this be odd?

Now you know how I feel about put option investing...

With put options, you sell a right to another investor that allows that investor to put their stock to you (force you to buy) at a set price (strike price) before a certain date (expiration date). You get paid for this right in cash, today. If the stock stays above the strike price, nothing happens and you keep the money. Even if the stock drops to the strike price, there may be several ways to "rescue" your position while you make even more money, but you may have to pay the strike price for that stock.

The Risks...
The biggest risk you run is that the stock drops below the strike price. Then you may be forced to buy the stock at that price. So, only sell puts on stock you wouldn't mind owning and at prices you feel are a bargain. Try not to sell puts more than 60 days away either.

I'm still watching that FREE MONEY-TAKE SOME box...Is that you I see coming this way? Will you take some of the money or just walk by?

An example for selling put options:
BBB Systems stock (not a real stock) is trading around $22 and you can sell a month and a half out 15 Put for 55 cents a share. That's $0.55 a share so you can sell 20 contacts (100 shares per contract = 2,000 shares) and receive $1,100 today...That's "Free Money"... Look at this closer and you see that you are safe on this investment unless BBB stock drops 32% to $15 in the less than a month and a half. There's probably a pretty low chance of that but that's why you only get $0.55 a share. You could pick up $2.00 a share ($4,000) if you are comfortable with a $20 strike price. But... Remember, if the stock drops you will be forced to pay $20 a share.

Step-By-Step Procedure "Finding Put Options to Sell"

We will look a two ways to find put options...First let's assume you know the stock you want to sell the put option for, then let's look at some put options SmartSearchXL finds for us.

Use the stock market trading tips and steps below to learn how to identify put options for a stock you already have identified. This may happen if you know there is a stock you want to buy but you think the price might be too high right now. The Put strike price you select should be a price you don't mind paying for the stock.

1. If you have not done so yet, go to https://www.poweropt.com/logon.asp.
2. Enter your Email and Password then click the [Log On] button.
3. When the MY HOME page appears, enter a stock symbol in the upper right side of the page next to "Symbol:", then click "chain".
4. The "Small Chain" with "Calls & Puts" is shown by default, you should change both drop-down menus to "Large Chain" and "Puts Only".
5. For more information on what the column headings mean, move your pointer over one of the underlined headings and in a few moments a definition will appear.
6. Scroll down the page to find an expiration month and price that is right for you. Or change the Expiration drop-down menu at the top.
7. With this "Free Money" strategy, you will want to pick a price that is out-of-the-money or much lower than the current stock price. (i.e. if the stock is now at $53, you might want to sell an option at a $30 or $40 strike price) The "Put Midpt. Price" column shows how much you could expect to receive per share of your stock. Multiply this by the number of shares you plan to sell options for and remember options are usually bought and sold in even 100 share lots.
8. The last column in the table shows you the theoretical probability that the stock price will be above the strike price by the expiration date. The higher the % (closer to 100%), the less likelihood you will have to purchase the stock at expiration.

Now let's see what kind of put options the SmartSearchXL Tool can find for us.

1. If you have not done so yet, go to https://www.poweropt.com/logon.asp.
2. Enter your Email and Password then click the [Log On] button.
3. When the MY HOME page appears, click the "Naked Put" navigation tab in the top left.
4. Now click the "Search" link in the "Naked Put Tools" section of the page - near the middle.
5. Scroll down the page until the search settings area appears, at the top of the parameter field, you will see "Search Settings Saved As:" click the drop down menu and select the pre-set criteria "Tipsheet - OTM Puts". The system will automatically pull up a pre-set search and display only those puts that match the criteria.
6. Once the results come up, you can look through the parameters and make any changes to the pre-set criteria so the results better match your individual investing ideas. If you make any changes, simply click the [Submit] button and the system will redo the search and only show those transactions that match the new parameters.
7. For more information on what the column headings mean, move your mouse pointer over one of the underlined heading and in a few moments a definition will appear.