You just purchased this stock for $13. You see, your cost basis is adjusted by the premiums you’ve received for selling the put. If you’ve ever wanted to buy wholesale, you’ve done so. You’ve taken in $2 for selling the put and now your $15 purchase price is adjusted by this amount and you have a $13 cost basis. Just think, this stock could be selling at $14.50. You could take the stock and sell it immediately and have a $1,500 profit. You could also:
1. Hold onto the stock for awhile. Remember, you thought this stock was going up. Is the story line still true?
2. Sell a covered call on all or part of the stock. You could now sell a call option at a $12.50 or $15 strike price, or wait for the stock to strengthen and sell the $15 call option for more money (hoping to get called out or not) or even the $17.50 strike price if it moves up a lot.
3. Go short on the stock, so you don’t have to actually purchase it. I’ll explain this later.
One thing I learned from my real estate days is that if you buy wholesale, all kinds of good choices present themselves. You can sell immediately and your payments are lower so you can rent at a profit, et cetera. The same is true with stocks. You have good choices if you buy wholesale.
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