A good investment is when you get high returns for something you paid for at a low price. There is no advantage in buying and paying for stocks at the current market price. This method of buying stocks is what is typically used by the non-trading public. Instead of buying your stock in this manner, consider using stock options instead. Stock options give you control over how much you pay when you buy stock, and allow you to buy stocks at lower rates than other investors. They can be used to trade stocks for the short term. Stock options are also ideal for making long-term investments.
Using stock options as a strategy to buy stock has several advantages. When the put options first get sold, the trader immediately receives a profit from the price of the put options. On the other hand, if the underlying stock price fails to decrease and reach the put options’ strike price, you have the option to not buy stock and keep the profit you got from the put options.
The moment the underlying stock price reaches the put option strike price, however, you can now buy at the stock price, which is lower than the market price. This allows you to choose the stock price and what put options to sell, giving you control over the price you can buy your stock at.
Finally, you can use your profit – the price of the put options – as a buffer between the break-even point of the trade and the purchase price of the stock. This buffer keeps your stock trade from going into negative profit even when the stock’s price fluctuates slightly. In other words, using stock options puts you in a safe, win-win situation where costly risks get reduced.
Read on to find out how to buy stock at a lower price.
- Choose a suitable stock. When choosing stocks, remember that your reason in investing in the stock must be the same as your reasons for buying the actual stock. The only difference between stock options and normal stock is that purchase of the former is done using open contracts, whereas the latter uses underlying stock.
- Sell one stock out of the money for every one hundred shares of stock. A contract that is “out of the money” is in a loss, regardless of what direction it takes. This usually happens in the instance when the underlying security price of a call contract is lower than the strike price of the options contract. Alternately, a put contract can also be considered “out of the money” when the strike price of the options contract is lower than the price of the underlying security.
- Wait until the stock price decreases until the strike price of the put options.
- Once the exchange assigns the options, purchase the underlying stock using the strike price.
- If the exchange does not assign the options, consider the premium you received for the put options as your profit.