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Twitter Are you a strong believer in the future of electric vehicles?
If so, I have a wonderful way to buy what many analysts are calling the “Chinese Tesla.” The company . . . Nio (NYSE:NIO).
I am offering a conservative way to bring in $220 every 43 days in NIO while having the ability to buy NIO shares for 12.7% less than the current price of the stock. This is how professional investors buy stocks.
Learn the technique below. You won’t regret it.
As you can see in the chart above, the stock was recently trading for $75.89. I am willing to pay $70. By selling puts, I have the opportunity to buy NIO shares for 12.7% cheaper than the market price, or $38.70, and collect roughly $220 for every options contract sold over the next 43 days.
Most investors would set a limit order to buy NIO shares at $36. Or impatiently buy NIO shares at the current price of $38.70.
Why would anyone choose to take that route when you can collect 6.1% or $220 every 43 days while waiting for the stock to hit your price?
The premium collected can be used as a source of income or simply to lower the cost basis of the stock.
I often prefer the latter, because I only sell puts on stocks or ETFs that I am willing to own for the long haul. Obviously, owning shares for significantly less has lots of appeal. Often, I will sell puts for several months before I am assigned, or “put,” the stock. In the case of NIO shares, if I sold puts for six months, I would lower my cost basis in the range of $8 to $12 per share.
Let’s go through our example in greater detail.
Again, we can sell one put contract that gives us the ability to buy 100 NIO shares at $36 a share – and collect an immediate $220.
And no matter what happens, we get to keep that $220. If NIO stays above $36, the premium of $220, or the 6.1% we collected, is ours.
But for the sake of further understanding, we should examine the alternative – NIO shares closing below $36 at option expiration. In that case, we would keep the $220 and be forced to buy NIO stock at $220 per share.
In this case, we’d actually own the stock for $33.80 per share – that’s the $3 strike price minus the $2.20 premium – or 12.7% less than NIO’s recent market price.
The important thing to remember is that if the stock trades below $36 at option expiration, you become a shareholder just like everyone else – but at an 12.7% discount.