Option prices have an interpretation of the expected trading range for a given time period. We can use the option prices as an indicator of the expected future trading range. If we feel that the asset is undervalued and we desire to own it, then we can sell a put option at the entry price of our choosing. Once we sell a put option we can only have one of two outcomes...either the option will expire in the money or it will not. If it does not, then we just keep the premium income as pure profit. If however, the market expires in the money, then we will be assigned and the asset will be "put" to us at the strike price of the option in which case we still keep the premium income.
A picture is worth a thousand words....
Please trade responsibly.
A picture is worth a thousand words....
Please trade responsibly.
