A few months ago I sold a put. I thought I would test out the idea of making money selling puts on stocks that I wouldn’t mind owning, so I scraped together $1,000 and put it into an old brokerage account I already had opened. It only had a few shares of a stock a purchased a few years ago and some worthless penny stocks I bought on a “good tip”. I would have been better off buying a lottery ticket, but I like the stock market. In all my account was worth about $1,100 at the start.
No, I’m not a millionaire from trading options, I just want to start building an account that will someday provide income for daily expenses, but for now I am just letting it build, or at least that is my hope. So here’s my goal: I want to make 2% per month on the $1,000 I put in the account. It doesn’t sound like much, only $20 a month to start, but over a year it would be a 24% return.
So I was looking to earn about $20 and the max price of the stock I could work with was $10 so I was pretty limited. About that same time Zynga took a dive and was around $3 when the smoke cleared and I thought I wouldn’t mind owning the stock so I sold a put at $3 and collected a $21 premium on the 100 share lot. Not bad I thought. The option expired in August and was over $3 at the time so I kept my cash. After commissions I ended up with $19.50. It’s not quite the $20 but close.
In August I decided to be a little more aggressive. I found a higher priced stock that paid a better premium for selling options. Of course it’s because it is a volatile stock. The company was ZAGG. I sold a put on 8/17. The stock was trading around $8.50 a share and it had been as high as $16 a year ago while the company was still profitable. Unfortunately that night after the close there was some negative news and the stock was at $7.00 the next open. I thought for sure I would be the proud owner of ZAGG after the put option expired. I had collected a $40 premium, so I told myself I was really buying the stock for $7.60 if the option was exercised. Needless to say by the expiration of the option the price was over $8 per share so once again, I kept my cash and started again.
After the ZAGG option expired in September, I was feeling good and again, sold a put. This time I chose to work with RIMM (Research In Motion), mainly because it fit the criteria of earning $20 in premiums. I sold a put for the October expiration at $6 and collected an option premium of $25. At the time it was trading around $7.20. I had lots of room to work with. This time I really did not want the stock so I chose a strike price farther away from the current price, but willing to own the stock at $6 if it went down that far with the though I could always sell covered calls until it came back up and I was called out.
Since I sold a put at $6, reserving $600 of my cash I still had over $400 to work with, so I decided to sell another put on Zynga with the strike price of $3. I collected an additional $17 of premium but the sock is now around $2.50 with only 5 days left to expiration. Right now it looks like I’ll be buying some stock this time. It’s bound to happen sooner or later. If it does, I’ll just have to start selling calls on the stock I own, but we’ll see how it works out if that happens.
DISCLAIMER: This is posted for educational and information purposes only and is not a recommendation to buy or sell any stocks or options. Remember, trading options involves risk. Consult with your financial advisor regarding your financial decisions.