Writing A Put

Have you ever given your stockbroker an order to buy a security at a specified price? If you have, you have participated in a waiting game. The stock will not be purchased until it trades at or below your limit price. Instead of waiting for that to happen, you could have sold a cash-secured put. A premium (the price of the option) for selling a put option would be paid to you for accepting the obligation to buy a stock that you want to be a part of your portfolio at the price you select. If the stock does not drop below the strike price by expiration, the premium will be retained by the seller and another put may be sold. By selling the put, the investor receives the premium while waiting for the stock to decline to the strike or price at which he is willing to own it. Therefore, the cash-secured put is a strategy that may help you accumulate stock at a lower price than where it is currently trading (net cost = strike price - premium).