Put and call options

As mentioned in the introduction there are two types of contracts, puts and calls.  You buy puts if you think the stock will move lower or you buy calls if you think the stock will go higher.  Great strategy, right?  Wrong!

The problem with buying puts and calls and especially “out of the money” (OTM) puts and calls is the time factor.  The closer to the expiration date, the less the time premium on the option.  Time is a huge factor when dealing with options.  In fact, 90-95% of out of money puts and calls become $0 or simply expire.  If that’s the case why not do the opposite and make money in 90-95% of the time?!  This is exactly what we do.

Instead of buying puts and calls we actually sell them.  More specifically, we sell out of the money puts.  When you sell out of the money puts, you commit yourself to buying a stock at the strike price.  For example, XYZ stock is currently trading at $40.  This month $32 strike price put cost $.40 – $.50.  So if you sell 10 contracts of this put at $.40 (you may actually try to sell it at $.45) you’re committing yourself to buying the stock at $32 meantime putting $400 in your pocket!  Free money!  Unbelievable, right?  And that’s legal!  At the expiration day, if the stock price is $32 or lower you get 1000 shares of XYZ at $32. If the stock price higher than $32 then the option is expired (becomes $0).  The beauty of it is that in both cases, higher or lower, you keep your $400 no matter what and trust me 90-95% of the time this put will simply expire.  So, in this case, instead of buying the stock at $40, you get 20% downside protection and get paid $400 (could be more, depending on the number of contracts sold) for doing so.

If you do it every month with different stock, you will end up making a residual income worth your friends to envy you. We are talking about tens of thousands of dollars a month.

How we help you to make money

This is the part where Igrena Financial can help.  With over 20 years in the market and experience with options, we have created a tool which scans through tens of thousands of companies several times a day, looking for great out of the money puts.  We look for stocks with 20%, 15% and 10% out of the money puts.  We also calculate what percentage you will make if you sell this put in regards to your option maintenance requirement.  Calculation is using this formula:

  1. 25% of the current stock price, minus the amount that the option is out of the money, then add the amount of the premium you will receive.

  2. 10% of the strike price plus the premium received

Option maintenance requirements depend on your brokerage house.  For example, Ameritrade allows you to have a Portfolio Margin Account which gives the lowest margin maintenance requirement we have seen so far.  But feel free to shop around.

So here is your road to success:

  1. Open a brokerage account and get approved for highest level of option trading (usually 3 or 4 called uncovered or naked puts)
  2. Use Igrena Financial posts to find the out of the money puts
  3. Sell every month or sometimes even every week
  4. Pocket the money

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