When the investor holds the cash to buy 100 shares of a specific stock at the put option exercise price, he can sell the put option of the stock to obtain the premium
- The maximum profit is the premium for selling put options
- When the stock price falls below the exercise price, it will be automatically exercised.
- When the stock price continues to fall, selling call options will result in the assignment of stocks at a higher price than the current stock price.
For investors who want to buy a stock, selling put options to receive shares can appropriately reduce the cost of holding shares
When the stock price drops significantly, the risk of selling put options is greater. Therefore, it is not recommended to participate in selling put options when the stock is in a sharp downward trend.