Quote:
Originally Posted by Patriam1066
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Hey Gwaihar when do I buy GM. This is a long term holding put into a trust for my grandchildren, not thinking short term profits. Nonetheless, I still like to buy low. I understand that time in the market > timing the market, but my Middle East haggle Brain doesn’t think that way
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You can open a trading account with TDAmeritrade, within the "trust", yeah?
GM currently trading for 30$. Surely, you'd prefer to pay less than that, but how much less is your current target? -10% from today's price? -20%? How long are you willing to wait for the trust to take possession of the actual shares and start reciprocating their paltry dividend?
When you SELL a PUT, you're promising to buy a stock at a specific price, just like when you set a "Limit Buy" on the actual security, except you're doing it in increments of 100 shares at a time.
So, lets say you want 100 shares in the trust, and you'd like to have them in March 2021, if possible, and only if you can get them for 20% off today's 30$ price.
Currently, SELLing a March 21 2021 GM PUT contract at the guaranteed price of 24$/share (for 100 shares)will pay you $1.64/share (so, 164$)
The only difference between a limit buy and selling a put option contract is:
The point at which the transaction occurs is not
"whenever the price drops to 24$ or below from now till the time i set for the buy order to expire/cancel" (LIMIT BUY on the GM security directly)
instead
At the closing bell on a pre-specified day, the trading price is checked. If it is at or below your put contract's price, you buy them for the put contract's price. If it finishes even 0.01 more than your strike price on a "Put" contract you SOLD expires worthless (to the person who bought it from you), and your collateral is returned.
AND
THEY PAY YOU to buy your contract
(be careful not to BUY a put instead of SELLING one) Buying a put option from someone is saying that you think the price is going to drop further below the strike price than the premium you're paying, so on that expiration day, you're going to buy 100shares from the market at the closing price, and force the PUT SELLer to buy those shares from you at the (Higher) strike price to turn a profit on the difference.
The PUT BUYER is buying "hope", whereas the PUT Seller is collecting a premium on that buyer's "hope".