Let’s talk Options, sell PUTS, and you’ll have none when its exercised.
Even though this is my blog, my voice shouldn’t be the only editorial on investments. When others make sense, they need to be recognized.. and their perspective shared with everyone. Canadian Capitalist knocks some sense into claims that selling puts is “simply money for nothing”. Here’s an excerpt, the simplest explanation of why people would want to buy the puts you sell.
“[Put buyers] are paying the seller to assume some risks they are not willing to bear and it would be wise to assume that the premiums reflect the risks involved.”
CC starts with a common scenario that would entice investors to sell puts, and breaks it down by explaining the difference between INTENT and OBLIGATION. You’ll dread that obligation, when you’re hung out to dry in a bad investment situation, with no options remaining.
This is not instant replay, head on over to Canadian Capitalist to read what he has to say about this subject, and stay there for more investment wisdom. Why I liked the article was because he was providing an excellent counter-point to Derek Foster’s book “Money for Nothing and Your Stocks for Free“.
Let’s face it, that book title was used because it will sell more volumes than perhaps a boring one like “Fundamentals of options, and mortgages”. Aren’t you the sucker for not picking up the book and and employing the strategy within? Meanwhile, the publishing company and the author are getting richer with every new copy sold. Too much financial media out there are sounding more and more like infomercials. I guess it’ll be futile to hope for finance as a non-entertaining subject? It’s my belief that those who approach it with that attitude gets the most out of the information.
Now, I’m not all negative and down on the idea of using options. There are times when using them wisely is the right move. Options have made some people money. Just don’t expect to dive head first and make oodles of it without any risk or consequence. For every financial instrument that have made people rich, those same instruments have also sent some others to the poor house. Don’t be blindly influenced by tactics devised by Gurus who are getting rich off their advice. NOTHING IS FOR FREE!
