Listen to a Business English Dialogue About Writing puts to acquire stock
Kenneth: Hey Vanessa, have you ever considered writing puts to acquire stock?
Vanessa: No, I haven’t. What does that involve?
Kenneth: Writing puts involves selling put options on a stock you’d like to own, giving the buyer the right to sell you the stock at a predetermined price, known as the strike price.
Vanessa: How does writing puts help you acquire stock?
Kenneth: If the stock price stays above the strike price until the option expires, you keep the premium you received for selling the put, and if the stock price falls below the strike price, you may acquire the stock at a discounted price.
Vanessa: Are there any risks associated with writing puts?
Kenneth: Yes, if the stock price falls significantly below the strike price, you may be obligated to buy the stock at a price higher than the current market value, resulting in potential losses.
Vanessa: Can you give an example of how writing puts works?
Kenneth: Sure, let’s say you write a put option with a strike price of $50 on a stock trading at $55. If the stock price remains above $50 until the option expires, you keep the premium as profit.
Vanessa: How do you determine which stocks to write puts on?
Kenneth: It’s important to choose stocks you wouldn’t mind owning at the strike price, with strong fundamentals and a bullish outlook, as well as sufficient liquidity in the options market.
Vanessa: Thanks for explaining, Kenneth. Writing puts sounds like an interesting strategy for acquiring stock at a potentially discounted price while earning premium income.