It is a favourite way for investors because it is a high probability strategy that turns the tables on the market: instead of buying options, you act as the "insurance company" collecting the premium.
How it works: To sell one GLD put, you must have enough cash
to buy 100 shares of GLD at your strike price.
1. Pick a Strike price (the price you are happy to buy gold at) & an expiration date (eg 30 days away)
2. You sell the contract & immediately receive the premium cash.
3. You watch the Gold price move until the expiration date.
Scenario A: Gold stays above your strike. The option expires worthless. You keep the cash and the premium.
Scenario B: If Gold drops below your strike price at expiration, you are "assigned"& you buy the 100 shares of GLD at your strike price.
It is great if you want to own GLD at a discount.
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