One put selling strategy is to establish a long position by selling puts. The option seller (or option writer if you prefer) is obliged to purchase the stock at the strike price. If you want to establish a new long position in the stock, sell the put options at your entry price. Keep in mind that each option contract is for 100 shares. When you write the contract, you will collect the premium on the option.

There are two possible outcomes for selling a put. One, the option is in-the-money and exercised. As the option writer you will obligated to purchase all the shares at the strike price. The end result is much the same as if you had entered a limit order at your entry price. The stock fell below your target price and you purchased the shares. In either case you established a long position (that is you own the stock) at your entry price. The one difference is that by selling the put option, you collect the option premium from the option buyer.

The second possible outcome from selling a put is that the option is out-of-money. The option doesn't get exercised. You are not obligated to purchase the stock. Again, this is similar to a limit order where the stock didn't reach your entry point. In both cases you do not end up purchasing the stock because your entry price was too low. But again you collect the premium for writing the contract.

As you've seen, selling puts can be used like a limit order to establish a position in a stock. The put selling strategy surpasses a limit order in that you profit by collecting the option premium.

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