Use PUT OPTIONS to get GOOD Bargain on Buying Stock

The Dow made its third 300-point swing of the week Thursday. This time it finished near its worst point of the session after trending lower throughout the day. The two days previous reversal was not supported by public confidence on the impact of $700 billion bailout plan, amid the dismal jobless claim for the week ending 27 September, increased 1,000 to 497,000, exceeding the 475,000 claims that were expected.

Now the question is do we on the bottom yet? Do you wish to buy your favorite/good stock, but you are afraid to do so because of current volatility that might push the stock price even lower again? But, on the other side, the market has big possibility to rallying at any time once House of Representative approve the bailout plan and you will feel miss the train.....

Well, to buy stock even at larger bargain, you can SELL PUT OPTIONS. This options strategy is very simple, yet provide us with lower break-even to get our favorite stock. Sell Put is a synthetic of Covered Call, however, we use differently on different situation.

Say APPL (Apple Corp)is currently at 100.10 on yesterday closing (Thursday). The stock has been depressed lately because analyst lowering the stock grades in anticipation of lower earnings due to lower demand on products. Well, traders and analyst has different opinion. Traders just buy low and sell high. The price of APPL can be a bargain for us since the company is a rich cash company with great product and innovation.

If we look at 95 PUT, we can sell options with premium of 11.05 (1 lot)for November expiration (49days). The huge premium is due to high stock volatility - 101%. If you SELL PUT OPTIONS, your account will be credited by $1,105. If the stock does not go beyond 95 on the expiration date, the premium is yours. Therefore, if you believe that current stock position is on the lowest capitulation, why not SELL PUT?

If the stock goes beyond 95 on the expiration, you will be assigned 1 lot (100 shares) with the price of 95 per unit. However, you have receive in advance 11.05 so the net stock price that you buy is 83.95. I still remember that when APPL on the high of 180, and people still chased the stock as they believed it would hit 200 very easily.

The analogy is like this.... I went to a department store and I like Apple computer and wish to buy one. The price is $1,200 (stock price). Then, I bargain again to $1,000 (strike price, for 49 days). While the store owner is still considering my proposition, I walked out from the store with $132 advance payment (since I put commitment to buy at $1,000). The advance payment will be mine whether he agrees or not on my proposition. If he agreed on my bargain price, my net Apple computer price will be $868 ($1,000-$132).

If you love the merchandise, why not using PUT OPTIONS to get good bargain on buying your favorite stock? Consider this while it is not too late......