I’ve been reading The Options Bible lately, which I didn’t think I’d get much out of other than mechanics of different options strategies, which I feel pretty comfortable with already.  However, while reading the section on selling naked puts, it discusses on how you can sell PUTs as a way to mark an entry point to when you want to buy a stock, while collecting premium.  Lately, I’ve been looking at AAPL when it was in the high 90s and I was wanting to get back in if it was going to go back to 90 again, so I realized I could sell PUTs, collect the premium, and then if it does go back to 90, and if I was assigned, I would be obligated to buy the shares for $90, a price I wanted to pay for anyways.  If it never got down to 90 then the PUTs would expire worthless and I’d keep the premium I collected.

Now, when it actually gets back close to 90, I may chicken out and want to change my mind based on a different market outlook, so the only way to get out of the obligation would be to buy back the PUTs but by then they would have increased in value if the move down was quick, probably causing a net loss.  However, if I was still convinced 90 was a good price target for me then it’s a good way to commit yourself to buying at that level and collecting some premium on the way down.  Pretty cool!