Category Archives: References

Options 101: Credit Put Spreads Can Boost Your Gains and Lower Your Risk

By Larry D. Spears, Contributing Writer, Money Morning

Last month, Money Morning showed you how to use a technique called selling “cash-secured puts” to generate a steady flow of cash from a stock – even if you no longer own the shares.

It is a highly effective income strategy that can also be used to buy stocks at bargain prices.

But selling cash-secured puts does have a couple of drawbacks:

  • First, it’s fairly expensive since you have to post a large cash margin deposit to ensure that you’ll be able to follow through on the transaction if the shares are “exercised.” ¬≠Thus the name, “cash-secured” puts.
  • Second, if the market – or the specific stock on which you sell the puts – falls sharply in price, you could have to buy the shares at a price well above their current value, taking a substantial paper loss.
Fortunately, there is a way to offset both these disadvantages while continuing to generate a steady income stream.

It’s called a “credit put spread” and it strictly limits both the initial cost and the potential risk of a major price decline.

I’ll show exactly how it works in just a second, but first I have to set the stage…

Complete Reading Here.