Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘(selling) puts for income’

How Put Selling Creates Monthly Income

Why would an investor sell put options instead of just buying the stock? You already know my response to this question – to create monthly income. There are several reasons investors should include put writing as a portion of their investment portfolio. Here is my list:

First and foremost is to create income. In this case, we are looking to collect the cash premium from selling the put option and not necessarily purchase the stock. This concepts is very important to better understand. My initial objective is capturing the premium but I realize in some cases the stock will be put to me. This is why I only sell puts on a select list of stocks I am willing to own if put to me. I like to focus on world class stocks that have stable earnings, strong balance sheets, pay growing dividends and trade within a low beta range in the market. This is part of my success using this strategy as I can collect dividends and sell covered calls for more income if the stock is put to me.

Secondly, I can purchase the stock at a lower price or discount to its current market price. The cash premium I collect from selling the put option reduces the capital outlay to enter or purchase the stock. I have experienced periods where I would sell monthly puts on a stock for 6 to 9 months before the stock was put to me. The amount of premiums added together made the entry price of stock significantly below the market price. For example, assume I average premiums of $100 over 6 months of monthly put writing which sums to $600. I have just lowered the purchase price of the stock by $600 – this is buying stocks at a discount.

Lastly, I use put selling to create my favorite income strategy – the Put-Call-Dividend (PCD) Income Strategy. This is simple selling puts each month on a select stock to collect monthly income. If the stock gets put to me, then I sell covered call options for more income while also collecting dividends paid by the stock. I sell call options for premium each month until the stock is called away from me. Then, I will start selling puts against the stock again. This strategy is exactly why I only sell puts on stocks I want to own – world class, strong dividend stocks.

This is the best income strategy I use in today’s market. In the October expiration cycle, our subscribers made 1.6% for the month by selling put options. For the past 3 months, monthly returns range from 1.5% to 3.1%.  How would you like to an extra $500, $1,000, $2,000 or more in income each month? Learn how to create monthly income by joining our investment newsletter.

 

Now You Can Sell Puts for Income in the New ETF

One of the recent trends in the income investment newsletters is the concept of writing (selling) puts for income.  You had to know that it would only be a matter of time before an ETF would be launched using this concept.  Investors sell put options to collect the premium income as an option strategy to generate investment income.  It is interesting to have an ETF to do the heavy lifting but prudent investors should monitor this new put writing ETF for positive results before buying shares.

Are you ready to sell puts on Netflix (NFLX), Green Mountain Coffee Roasters (CMCR) or Salesforce (CRM)?   If Yes, then this ETF is for you.  These and other stocks with current put writes is shown below.

ALPS just launched the U.S. Equity High Volatility Put Write Index Fund (HVPW) . The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an index called the NYSE Arca U.S. Equity High Volatility Put Write Index. The Index reflects the performance of a portfolio of exchange-traded put options on highly volatile stocks.

The ALPS HVPW Fund is designed for investors who seek to obtain income through selling put options, selling 60-day listed put options every 2 months (6 times per year) on 20 stocks. The Fund intends to distribute, at the end of each 60-day period out of net investment income and/or short-term capital gains, an amount of cash equal to 1.5% of the Fund’s net assets at the end of such 60-day period. If the Fund’s net investment income is insufficient to support a 1.5% distribution in any 60-day period, the distribution will be reduced by the amount of the shortfall. Also note while the Fund only intends to make such distributions out of net investment income and/or short-term capital gains, it is possible that in certain circumstances, a portion of a distribution may result in a return of capital (which is a return of the shareholder’s investment in the Fund).

Put options are a type of financial instrument used to provide the owner the right, but not the obligation, to sell the security at a set price, or “strike” price, on or before an expiration date.  Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.

HVPW offers diversification by holding a portfolio of 20 names rolling every 2 months (i.e.120 puts per year).  This is one advantage to the ETF investor who doesn’t have the time or resources to diversify across multiple investments.

At the end of the two month period following expiration of the options the index is decreased by 1.5% to represent the 60 day period distribution, then the new set of 20 stocks are chosen for the new period’s option positions.

 

Here is a list of the initial 20 stocks with put writes:  HPQ ALXN, TRIP, CRM, NU, CTRX, ONXX, NVDA, DISH, MGM, BBY, MNST, CHK, GMCR, NTAP, CIE, NFLX, SHLD, VRTX, STZ

 

HPQ US 04/20/13 P14 -0.01%
ALXN US 04/20/13 P70 -0.01%
TRIP US 04/20/13 P37 -0.02%
CRM US 04/20/13 P150 -0.02%
NU US 04/20/13 P35 -0.02%
CTRX US 04/20/13 P45 -0.04%
ONXX US 04/20/13 P65 -0.04%
NVDA US 04/20/13 P11 -0.04%
DISH US 04/20/13 P31 -0.07%
MGM US 04/20/13 P11 -0.08%
BBY US 04/20/13 P15 -0.08%
MNST US 04/20/13 P42.5 -0.09%
CHK US 04/20/13 P17 -0.09%
GMCR US 04/20/13 P39 -0.10%
NTAP US 04/20/13 P31 -0.11%
CIE US 04/20/13 P22.5 -0.17%
NFLX US 04/20/13 P165 -0.19%
SHLD US 04/20/13 P41 -0.21%
VRTX US 04/20/13 P40 -0.21%
STZ US 04/20/13 P37.5 -0.26%
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