Greg Boland

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Selling options: what if someone paid you while you waited to buy a share?

Most investors think the only way to make money in the share market is to buy shares and hope they go up.

That approach has certainly worked well over the long term, but experienced investors often have another question.

Can I get paid while I'm waiting?

It may sound too good to be true, but one of the lesser-known uses of listed options allows investors to potentially generate income while waiting for a share price to reach a level where they would be comfortable buying.

Like every investment strategy, it comes with risks, but when used appropriately it can become another useful tool for long-term investors.

Figure 1: NVIDIA is one of the world's most actively traded option markets. Investors can choose from hundreds of strike prices and expiry dates depending on their investment objectives

Buying shares versus waiting

Imagine you've been watching a company on moomoo like $NVIDIA (NVDA.US)$ , one of the world's leading artificial intelligence businesses.

You like the company, believe it has strong long-term prospects and would happily own it.

The problem is the price.

The shares are trading around US$200, but after such a strong rally you think they'd represent much better value closer to US$185.

Most investors simply place a good til cancelled (GTC) limit order at US$185 and wait.

That works perfectly well.

The only problem is that your money earns nothing from the waiting itself.

Figure 2: Rather than simply placing a limit order, investors can sell a cash-secured put and receive an option premium while waiting for the share price to fall to their preferred buying level.

Option investors sometimes take a different approach.

Rather than placing a limit order, they may choose to sell what is known as a cash-secured put option.

Figure 3: payoff diagram of a sold (written) put

In return for agreeing to buy the shares at US$185 if the price falls, they receive a premium from another investor (the options buyer).

If the shares never fall to US$185, the option expires and they simply keep the premium.

If the shares do fall, they buy the shares at the agreed price—but because they received the premium upfront, their effective purchase price is actually lower.

Some investors describe this as being paid to place a limit order.

It's not free money

That phrase sounds attractive, but it can also be misleading.

The premium is not free income.

It is compensation for accepting an obligation.

If the share price falls sharply, the investor is still required to buy the shares at the agreed price.

Imagine agreeing to buy at US$185 only to see the shares fall to US$165 after disappointing earnings.

The premium softens the loss, but it certainly doesn't eliminate it.

That is why experienced investors generally follow one simple rule.

Only sell options on companies you would genuinely be happy to own if the market fell.

The investment decision should always come first.

The option strategy simply improves how that investment is implemented.

Making your shares work harder

The strategy doesn't necessarily end once you own the shares.

Figure 4: Once the shares are owned, investors may choose to sell covered calls, generating additional income while agreeing to sell the shares at a predetermined price.

Suppose the investor has been assigned the obligation and has now purchased 100 NVIDIA shares at an effective cost below where it was trading previously.

Rather than simply holding the shares, another option strategy allows them to potentially generate additional income.

This is known as a covered call.

Figure 5: payoff diagram of a covered call (buy and write)

The investor agrees that if the shares rise to a predetermined price, they are happy to sell them.

In return, another option premium is received.

If the shares never reach that price, the investor keeps both the shares and the premium.

If they do rise above the agreed level, the shares are sold for a profit, together with the option income already collected.

Again, there is a compromise.

If the share price suddenly surges far beyond the agreed selling price, the investor misses some of that additional upside as they will be assigned the obligation to sell the shares at the options strike price.

For many investors, however, that's a trade-off they're willing to accept.

They have already decided on a price where they would be happy to sell.

A disciplined process

These two strategies—cash-secured puts and covered calls—are often combined into what option investors call the Wheel Strategy.

The name comes from the fact the process repeats itself.

First, investors sell put options while waiting to buy quality companies.

If they are assigned and become shareholders, they then sell covered calls while continuing to collect income.

Figure 6: the options wheel

Eventually the shares may be sold if the call option is assigned and the cycle begins again.

Rather than trying to predict every twist and turn of the market, the strategy focuses on patience, discipline and consistency.

It won't produce spectacular overnight gains, but that's not its purpose.

Instead, it aims to improve the returns generated from shares that investors already want to buy or own.

Why it appeals during uncertain markets

Markets don't always trend strongly upward.

In fact, history shows they often spend extended periods moving sideways.

Those environments can be frustrating for investors waiting for the "right" opportunity.

Income strategies such as cash-secured puts and covered calls attempt to make those waiting periods more productive.

Higher levels of market volatility can also increase the premiums available to option sellers because other investors are prepared to pay more for downside protection or speculative opportunities.

That doesn't necessarily make the strategy safer.

Higher premiums usually exist because the market expects larger price movements.

Investors should never chase premium alone.

A strategy for everyone?

Probably not.

Options involve legal obligations and require a sound understanding of risk.

They are not suitable for everyone and certainly shouldn't be viewed as an easy source of income.

However, for experienced investors who already understand the companies they want to own, option income strategies can become another way of managing a portfolio.

Rather than replacing traditional investing, they complement it.

The emphasis remains exactly the same:

- buy quality businesses.

- manage risk carefully.

- remain diversified.

- think long term.

The option premium simply becomes another component of the overall investment return.

Figure 7: moomoo allows investors to compare strike prices, analyse risk and visualise potential outcomes before entering an options strategy.

The bottom line

One of the biggest lessons I've learned over nearly four decades in financial markets is that successful investing rarely comes from constantly chasing the next exciting opportunity.

It usually comes from following a disciplined process over many years.

Cash-secured puts and covered calls won't make headlines in the same way as the latest artificial intelligence stock or cryptocurrency rally.

They are quieter, more methodical strategies.

But for investors prepared to understand the risks and use them appropriately, they offer something many people overlook.

The opportunity to generate income while waiting.

And sometimes, patience really does pay.

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