Assume price is 24 instead of placing a limit order at 24 I just sell puts at 24 I collect the premium and get assigned at 24 at expiration. Isn’t that just free money assuming I was always buying at 24?
Selling at the money puts close to expiration instead of buying the stock
byu/Giant_leaps inoptions
Posted by Giant_leaps
4 Comments
What if stock goes to $27? All you collected was premium and missed out on profit.
What if stock goes to $20? Then you overpaid for the stock.
If it was guaranteed free money everyone would do it.
Besides tax implications, given the fact that the strike price you are selling the put at is the fair price you are willing to pay for the underlying, then you are ok. Many traders would sell “in the money” contracts to buy the stock at a lower price.
Not exactly free money. While you collect premium, you’re obligated to buy at the strike if assigned. If the price drops, you buy at 24 but your stock is worth less. Check out [Investopedia’s page on options](https://www.investopedia.com/options-basics-5074543) to understand the risks and rewards.
But what if the stock goes up like you expect it to? Then u got the premium, but you dont own the stock at all, and you either buy in at a higher price or never buy at all since it may not be attractive anymore at those price levels.