WHAT IT IS
A financial transaction where an investor sells put options on securities, he/she wishes to acquire.
HOW IT WORKS
1. Selling puts allow investors to generate double-digit income and returns even in a flat, bearish, or overvalued market.
2. Allows investors to enter positions at the desired price while being paid to do so, thereby further reducing the adjusted cost base.
3. Provides protection in the event of a market crash. If the market drops 25%, the lower adjusted cost base would mean the positions would likely only drop 15%.
4. If the security rallies, the investor simply collects the premium which can be netted against the ultimate purchase price.
