Selling put options for better value

Firstly, i do not claim to be an options expert. And one may ask whats has value investing got to do with options?

If you really know how options work, you will be amazed at how it can help you to boost returns. What i advocate is the selling of put options. How does that help?

Let's look at an anecdotal example. Suppose a company is trading at $10. You sell an out of the money put option at a strike price of $7.50 and you obtain a premium of a $1. You muliply that by a 100 shares and you get to keep $100 first.

You do this with 2 aims in mind. Firstly, you feel that 7.5 is a price that is reasonable for you even such that if the option expires in the money, you get to scoop the stock up at a bargain price and still get to keep the premium of a $100.

The second aim is that of obtaining the premium. Even if the options expires worthless and you do not get the stock, you still get to keep the premium of the option you shorted. Isn't that a win- win situation?

Manpreet and i are super hardcore researchers and we have been researching on this topic like sex craved people. And there are 2 notable people who have employed this strategy to boost their returns. If my source is right, Warren Buffet actually sold $10 million dollars worth of put options while buying Coke's shares. Eventually they expired worthless and he got to keep the $10 million dollars.

Another noteworthy investor is Okumus Capital's Mr Ahmet. This brilliant chapp has been giving his investors a 33% return year after year after fees. Imagine what he would have gotten before fees.

Honestly, these days, what me and manpreet do is that after we screen for stocks which are valuable, we conduct our own discounted cash flow analysis and come up with an intrinsic value with about a 50% margin of safety, after which we proceed to sell options on the underlying.Keeping the premium is a fantastic event i tell you.

Better and better,
Lucas