Quote:
Originally Posted by lewdog
So let's say I'd consider buying 100 shares of GE but only if it hit $15/share (currently $17.76). Instead of just writing a limit order for GE at $15 GTC, I could write a "Sell a put" option for that price, set to expire at some time in the future (is my terminology correct?). Where do you find the premiums offered for such an option?
|
You don't write a "sell a put". You simply write a put.
Write = sell to open
Buy = buy to open
And what you would be doing technically is selling a naked Put. So you will have to post whatever margin requirements your broker has but yes you got the idea.
No need to sit with a limit order. Sell the put and pocket the premium while you wait to see of the stock comes to you. If it doesn't, you make your premium, rinse and repeat. If it does, you make your premium and get the stock at $15.
You find the premiums just buy looking at the options table on the stock. So if GE is at $17 and you want it at $15 you would sell a January $15 put to open.
However, this all sounds better than it is.
A) The premium you'll get will be next to nothing after commission on only 1 contract
B) a stock like GE is not volatile so the options won't be worth much
The more volatile a stock is the higher the option premiums are
Think of writing options as being "The House". You make your money little by little but consistently.