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Most people think options are complicated, risky, and only for Wall Street traders.
Well, they are wrong.
When we use options the right way, we can buy stocks at a discount and generate some income from the shares we already own.
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This is my first time writing about Options.
So I will try to keep it simple and beginner friendly.
Let’s cover some basics first.
What is an Option?
An option is a contract between two people.
It gives one person the right, but not the obligation, to buy or sell a stock at a specific price, before a specific date.
There are two types of options:
Call Option – gives the buyer the right to buy a stock at a set price
Put Option – gives the buyer the right to sell a stock at a set price
Every option contract covers 100 shares of a stock.
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There are a few key terms you need to understand before going further.
Key Terms to Know
This visual covers the important key terms:
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Beginner Options Strategies
There are two options strategies that every beginner should know.
The Cash Secured Put
The Covered Call
These two strategies are not about speculation or gambling on stock prices.
They are about generating consistent income, buying stocks at prices you are comfortable with, and getting paid while you wait.
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Most people buy options to gamble on the direction of a stock price.
We’re not going to be doing that.
We’ll be selling the options to the gamblers, and collecting their premiums.
Now, let’s understand these two strategies more clearly.
Strategy One: The Cash Secured Put
What Is a Cash Secured Put?
A Cash Secured Put means you sell a put option on a stock you would be happy to own.
In exchange, you collect a premium upfront.
The word cash secured means you have enough cash set aside to actually buy 100 shares of the stock if required.