Turning your portfolio into an insurance operator by selling put options
Health warning: options are risky business. They can cause significant losses and blow up your entire portfolio if you get them wrong. In fact, they are best avoided unless you really know what you’re doing. Even if you do know what you are doing, options can go badly wrong!
With all of that having been said, they are an instrument I am increasingly looking at as a source of income.
The way I think about it is this: by selling put options, I am providing insurance to my fellow market participants. I’m insuring other people’s portfolios against losses they might incur from a market meltdown.
In exchange, I get some very useful tax-free income (your tax position might be different). It’s hard to say no to that!
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