Why we sell puts

Selling puts can be a way to build a long-term portfolio of value stocks without overpaying. When the put is sold, you are setting a maximum price limit for your purchase. It is like buying on a limit order except that you are paid to wait for your order to be filled. With this strategy, you will only buy during pullbacks. Buying at a lower price and generating income from options premiums could lead to returns that are 5%-10% higher on positions than you would obtain by always buying at the market price.

Selling puts can also be a very effective income strategy. Most puts expire worthless and the seller profits when that happens. It is possible to generate income of 10% or more with this strategy. Aggressive traders can use full margin to increase those returns by up to five times.