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Sell a Put or Just Buy the Stock? Tom Preston Shows You the Math
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ticker lesson
Breakdown
0:00lesson
Selling out-of-the-money puts to buy stock
- Buy stock at lower price
- Generate premium income
- Short put becomes long stock if assigned
2:17AMZN· ticker
Amazon 220 put example
- Stock at $240
- Sell 220 put for $5.80
- Cost basis $214.20
- Profitable if stock above $220 at expiration
4:56AMZN· ticker
Amazon 220 put return on capital
- $585 profit
- $2,800 capital requirement
- 20% return on capital
- Stock needs 20% rally in 52 days
7:10FORD· ticker
Ford 12 put example
- Stock at $14
- Sell 12 put for $22
- 10% return on capital
- $2,800 capital requirement
9:38AES· ticker
AES 14.65 put example
- Stock at $14.65
- Sell put for $10
- 4% return on capital
- $240 capital requirement
12:14lesson
Dividends and put pricing
- Short puts reflect dividend value
- $1 dividend increases put by 36 cents
- Put price inflated with dividend
- Better return on capital than buying stock
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