BULL PUT CREDIT

High Level Concept:
1. Choose a stock or symbol that research indicates that it may remain steady & not go Down too much, implying that it is bullish. Or it is okay if it will be going up.

2. Then choose two strike price with a SPREAD of few dollars that is out of the money.

3. Then you BUY a PUT … the lower of the two strike prices.

4.Next, you SELL a PUT … the strike price is higher than what you bought.

5.You pocket the difference in the premium that you receive between the 2 strike prices … for each contract.

Example:

XOI is trading at 1540

You choose to BUY a PUT with Strike Price = 1400 & pay a premium of $13.20
This is a LONG position

Now, you Sell a PUT with Strike Price = 1410 & receive a premium of $14.70
This is a SHORT position

It is best to have both positions for same expiration month. In this example – July.

You pocket the difference in the premiums of $ 1.50 (this is the credit per share)
Note: Trading is conducted in contracts, each contract = 100 shares. Also, we will not take into account the commissions for both transactions, which are generally quite low (generally $25 for the entire trade).

If you buy & sell 10 contracts, you get a credit of $1.50 x1000 = 1500.00.


What happens at expiration:

If the stock remains above 1410, do nothing, you keep the credit received.

It is recommended that if it reaches very close to 1410 or the market is bearish, plus your research indicates that XOI will hit 1410 by expiration, then, monitor, & may be close the SHORT position. You do not want to be assigned the stock with a small loss.

Prior to getting into the position, conduct the research & analysis.


Margin, Risk, & Additional Notes:

Margin requirement is the difference between the strike prices times the # of shares. Here, it will be $10 per contract. For 10 contracts, it will be 10,000 dollars.

Maximum risk is the difference between the strike prices, less the net credit (difference in premiums).

This is a limited risk & limited income strategy.

You choose the right stock + the trend is bullish, as well as "Out Of The Money" (OTM).


A few words on what to choose?

Bottom line, investing in options is not for everyone & there are risks involved.

Options expire, you can lose the entire investment if the stock/ETF goes down substantially or crashes. Research & study details prior to investing in any form.

Do your homework, consult an expert &/or someone who is very familiar with investing in options.

Look into Index Options & E-Minis, especially that are liquid & settle in European style. You do not get assigned if it hits the strike price of the Short position.

XOI settles American style.