Considering to Buy The Dip on Tesla Stock? A Smarter & More Elegant Way To Do It: SHORT PUT!
$Tesla(TSLA.US$ stock dropped more than 5% in the extended session Wednesday after the electric-vehicle maker narrowly missed quarterly expectations for its revenue and saw adjusted profit margins drop as it cut its EV prices.
Facing this volatile market and constantly having the urge to "buy the dip"?
If you come across $Tesla(TSLA.US$ that could potentially drop to $160, would you place a buy order at $160 and wait for it to execute?
However, do you know how big players buy the dip?
How to be like Buffet: He would sell a put option at a strike price of $35, collect the premium first, and if the stock price does drop, he will then buy it at $35.
You might be wondering: "But I can't copy Buffet's moves, he won't tell me when to buy or sell o(╥﹏╥)o."
That is true, but one of the elegant dip-buying strategies used by Buffett - selling a put option on a favorite stock (SHORT PUT) - is something mooers can learn too~
Let's take a look at Buffett's real-life case of dip-buying:
In 1993, the stock price of Coca-Cola had already risen to $40, but Buffett, who was optimistic about its long-term prospects, wanted to increase his stake in Coca-Cola at his psychological price of $35.
Therefore, in April, he sold 5 million "short put" options with an exercise date of 17 December, at a premium of $1.50.At the time of sale, he immediately received a premium of $7.5 million ($1.50*5 million).
There will be two scenarios in the future ![]()
:
1. If the stock price of Coca-Cola is higher than the exercise price of $35, Buffett will directly receive the premium of $7.5 million
2. If the stock price of Coca-Cola is lower than the exercise price of $35, Buffett will buy Coca-Cola shares at his psychological price of $35 as planned.
Either way, it's a win-win situation for Buffett!
In fact, the stock price of Coca-Cola had been above $35 ever since, and Buffett had earned a premium of up to $7.5 million as expected.
So, how should we understand the "SHORT PUT OPTION" strategy indeed?
In fact, Buffett had also explained his understanding of SHORT PUT to his partners.He said:
If you like a company's stock but think the price may still fall, it's better to sell a put option. This way, you can get insurance. If the stock price falls, you can buy it at a lower price. If the price rises, you can earn the option premium as income.
What's more, this strategy has an additional advantage:
You get cash after selling the option, which not only avoid waiting with a buy order at $35 in your account but also improves cash flow!
By using the "Option Block Trades" feature on moomoo, we can also see that the "SHORT PUT" strategy was indeed favored by traders in the options market on 27 March 2023.
Of course, no strategy is a perfect one. SHORT PUT still carries risks:
If the stock price keeps rising, you can only earn the premium and may not be able to buy the stock at a lower price as intended.
If the stock price plunges and falls below the strike price, you may end up buying the stock at a higher price than the market price (although it may still be at your desired price).
This is similar to an insurance company providing insurance for someone else's stocks. It's highly likely that
You will receive premiums (i.e., the option premium), but you also have to fulfil the obligation when the option buyer execise the option.
If the stock price does drop below your strike price, what should you do?
If there is still some time until the expiration date, because the option still has time value, the buyer may not exercise the option immediately.
In that case, you can choose to "close out the position" by buying back the corresponding put option.Of course, if you have confidence in the stock price and believe it will rise again before the expiration date, you may want to wait for the option to expire.After all, in any case, the cost is always lower than the initial bid price!
Although, as an option seller, the theoretical risk is greater than the buyer's, and the profit is limited.
But if you think similarly to Buffett, and have a long-term positive view on a certain stock or want to increase cash flow while buying the stock at your desired price, then SHORT PUT is the "most suitable" dip-buying strategy for you.
So there you have it, folks. The most suitable way to buy low without breaking the bank.
Just remember, always do your research and consult with a financial advisor before making any investment decisions.
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Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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搞经济 抄底 加仓 : I always thought I got the Dip. Still it Dip 10x more and I never missed one.
CasualInvestor : Very good share. Changed my mindset from gambling to investing.
Leon 8888 : Because this is the price we have set, you can also earn full profit when you buy
To the MooOP CasualInvestor:
To the MooOP 搞经济 抄底 加仓: Try this option strategy hhh
Cool traderrr : What a smart way!
股勇者 : This is one of the most basic options strategy, CSP, cash secured put. Make sure u do not sell the naked put unless u know how and when to roll the options.
103106779 : Hi, seek advise: I like your posts with an option to vote diagram..
Hihihius : Try it today!!!
101772986 :
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