How to Use Naked Puts to Earn Income and Buy Overvalued Stocks

In this clip from episode 13 of the LEO Roundtable, we talked about selling naked puts in order to buy a stock that you think is overvalued, but one that you also want to own in the future. This practical guide is something that I think many people can benefit from.

Personally, I follow a handful of stocks that I truly think will be valuable in the long-run. This list of stocks hardly changes much, but I tend to shy away from buying them when I believe that they might be overvalued.

As I continuously monitor the stock prices, I’ve grown intimate with how the stocks tend to move — their volatility, general reaction to various trends in the market, etc.

Obviously, I can’t predict the future. Just like everyone else (except maybe the Fed), I don’t have a crystal ball or a magic button that can tell me what a stock will be worth tomorrow.

So when stocks are trading above their fair value — which I believe to be the case for stocks on my personal watchlist like SQ and TSLA — what can we do to stay engaged with the stock price? What strategies can we deploy to earn income while we wait for our buying opportunity?

Spreads have been at the top of my research list lately, but selling naked puts was an idea that @scaredycatguide brought up in this episode of the roundtable. I found it fascinating and I’m already getting ready to give the strategy a shot to try and generate a little income while I wait for a good buying opportunity in my long stock portfolio.