selling puts strategy

With this strategy, you are selling someone the right to sell you the underlying asset at a fixed price (the strike price), on or before the expiration date of the option.

This strategy has several great benefits.

If the asset price is above the exercise price at expiration, the puts will not be exercised and you just pocket the option premium. You can do this over and over again and may never get the asset "put" to you if the asset is above the exercise price at expiration of the option. This generates continuous income for you, increasing your portfolio and generating cash flow for other investments.

If the puts you sold do get exercised, then you are obligated to purchase the asset at the exercise price. But you essentially get it at a discount. You have already agreed that you would like to purchase the quality asset at the exercise price and the price is further discounted by the option premium that you collected.

If the asset does get put to you, you could then also sell covered calls on it to reduce your basis in the asset even further.

If you are thinking about purchasing an asset anyway, this strategy can be used to purchase the asset at a discount, or generate income for you as you stand ready to purchase the asset at a discount.

source: www.mindxpansion.com
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