Strategies for Short-Term Stock Market Gains: Selling Put Options

With the market becoming increasingly challenging due to stretched valuations, it's time to refine your investment strategies. One sophisticated technique that can yield substantial returns over the short term without a substantial commitment of your capital involves selling put options. This method is not only profitable but also provides safeguards that minimize risk. In this article, we will explore this strategy, discuss a recent trade, and provide actionable insights to help you prepare your portfolio for a potential market downturn.

Understanding the Power of Selling Put Options

Selling put options is a valuable skill in the world of short-term investing. By doing so, you can collect substantial payments and reduce the risk of owning shares that you believe to be underpriced. In exchange for a premium, you obligate yourself to buy the underlying stock at the strike price if the option is exercised. However, this risk is limited, as you can always close the position by buying to close, thus avoiding the obligation.

A Successful Trade: TTD and NVDA

On July 14, I executed a trade with two significant stocks, Tesoro Logistics LP (TTD) and Nvidia Corporation (NVDA), both of which have demonstrated strong potential in the short term. Here is a detailed breakdown of the transactions:

Selling TTD Stock

Closing price: TTD at approximately 432 on 10/16/2020 with a strike price of $255.00 P1 Profit: $589.34 Current price: TTD at approximately 432

With a current price of 432 and a strike price of 255, the difference is substantial, providing a significant cushion against any price drops. If the stock price falls below the strike price, I would have the option to buy the shares at 255, which is much cheaper than the current market price. However, rather than exercising this right, I can always close the position by buying to close, thus avoiding any obligation to purchase the stock.

Selling NVDA Stock

Closing price: NVDA at approximately 415 on 09/18/2020 with a strike price of $305.00 P1 Profit: $589.34 Current price: NVDA at approximately 415

Similarly, for NVDA, I sold put options at a strike price of 305, yielding a profit of $589.34. The current price of NVDA is around 415, well above the strike price. Again, I am protected by the wide gap between the current price and the strike price, offering a solid cushion against any short-term volatility.

Preparing Your Portfolio for the C-Actions

The recent global health crisis has had a significant impact on the market, leading to economic disruptions and volatility. As a result, it's crucial to have a well-prepared portfolio that can weather the storm. By leveraging strategies like selling put options, you can not only participate in short-term gains but also protect your investments.

To prepare for the C-virus (Covid-19) market impact, consider the following:

Conduct thorough research on potential stocks with strong fundamentals and a history of recovery from downturns. Diversify your portfolio to spread risk and capitalize on different market trends. Monitor market news and adjust your strategy accordingly. Keep an eye on volatility indicators and preserve cash to buy opportunities as they arise.

Conclusion

By honing your skills in selling put options, you can maximize your returns on short-term investments while minimizing risk. The recent trades with TTD and NVDA have provided valuable insights into the effectiveness of this strategy. As the market continues to face challenges, it's crucial to prepare your portfolio for potential downturns. With the right strategies and a keen eye on the market, you can navigate these turbulent times with confidence.