The market has been really volatile lately. How to profit as a dip buyer?
Let’s imagine: you want to buy 100 shares of Google at $110 but right now the price is too high, what should you do? Most investors will just keep on waiting for the price to fall, but do you know that you can actually use options to collect potential passive income while waiting for the stock price to drop to your ideal buy price? If you want to learn how to potentially make some money while waiting to buy shares on a dip, then keep on reading this post to learn this Dip Buyer Profit Strategy.
Warren Buffett once said: “The stock market is a device to transfer money from the impatient to the patient.”
So in order to be a successful investor like Warren Buffett, patience is key. But you may be wondering, how long do I have to wait before I can buy the stock? What if it takes forever for the stock to come down? While waiting, is there anything you can do to generate some potential income? Because we all know, time is money.
That’s why I am going to share with you a powerful options strategy for dip buyer like you to do that. I will also be using the moomoo brokerage platform to navigate how you can use this options strategy later. Let’s get started!
Dip Buyer Strategy Explained – What Are Options?
Options are financial contracts that give investors the right or obligation to buy or sell a stock at an agreed-upon price and date. Just like you can buy and sell a stock, you can also buy and sell an options contract. There are only 2 types of options you need to learn. The first one is put options, and the other is call options.
And in order for you to be able to buy stocks on a dip, and potentially generate 2% or more per month while waiting for the dip, you can consider SELL PUT options.
When you sell a put option on a certain stock, eg Google, it literally means that you are making a promise to buy 100 shares of Google at the price that you want. And in return for you making this promise, you get to collect some money called a Premium.
Now to make it easier for you to see, I am going to log in to the moomoo platform, to demonstrate how you can use this options strategy.
For example, you want to buy 100 shares of Google. Right now the stock price is $115, which is too high for you, and you only want to buy Google at $110 per share. So instead of just waiting for the stock price to drop and doing nothing in between, you can go and sell a put option at a strike price of $110, the exact stock price you wanted to buy Google in the first place.
By doing that, you are promising to buy 100 shares of Google at $110, and you will only buy it when it drops to $110 or below. In return, you will get to collect $190 USD of premium.
And if you want to calculate your Return On Investment, using $190 divided by $11000, which is the amount of money that you need to set aside to buy 100 shares of Google, your Return On Investment is actually more than 1.7% in about 21 days!
If you translate to a monthly ROI, this is already more than 2%.
If you are wondering what strike price to choose from. You can go -1, -5, or -10, but a general rule of thumb is to choose a strike price below the current stock price because you only want to promise to buy it below the market price.
And you can sell put options with an expiry date of 1 month or less, so you can constantly collect income month after month.
Dip Buyer Strategy Explained – The Correct Mindset
But most importantly, you will have to first ask yourself “Is this a great company you are willing to buy 100 shares?”
And secondly: “Is this the right price to buy?”
If you want to learn the 5 key metrics that Warren Buffett looks at to ensure he is always investing in a good company at a good price, check out the post about Warren Buffett Investment Quotes and the key investing metrics hidden inside his wisdom.
Dip Buyer Strategy Explained – What Happens Afterward?
On the options expiration date, there are only 2 scenarios that can happen. If the stock does drop below $110, you get to buy 100 shares of google at $110, which is the price you wanted to buy in the first place, plus you get to keep the premium of $190. But if the stock price stays above $110, you won’t be able to get the stocks, but still, you keep your premium, which is a free $190 into your account! Win-win!
That’s it! You have just learned how to use sell-put options to your advantage to collect some premium while waiting for the stock to drop to the price you want! There are many powerful options and strategies out there, if you are wondering what options trading strategies really work, I also wrote a post about Options Call and how you can use it to accelerate your return.
And if you want to sign up for moomoo to start your stock and options investing journey, you can do so here. You will even get a free share such as Amazon when you fund your account with $2700 SGD, and I will also send you my private portfolio watchlist to your inbox! All you need to do is to fill up the google form once you signed up and funded your account with my link earlier.
If you want to learn how to start investing with the power of options, then do join us in our upcoming Next Level Options Masterclass, where we will be sharing with you 3 options strategies for you to take advantage of! All you need to do is to register for your free spot here.
Do also note that this post is for educational purposes. The stock shared is not a buy/sell recommendation. Please make sure you do your due diligence before making any investment decision, so you can become an independent investor!
Lastly, if you want to stay up-to-date with my investment updates, do follow me on my telegram channel, where I share my daily investment insights! You can also watch the video where I explained about Sell Put options with moomoo brokerage navigation step-by-step. I can’t wait to see you grow as an investor! Happy investing 🙂