What if you could obtain shares of a stock you want to have in your portfolio for free? Would you worry about the valuation of that stock?
For example, when looking at the valuation of Apple (AAPL) the stock is permanently, grossly overvalued since 2019:
And what about Coca Cola? A great stock I want to own. I always wanted to own the famous KO. But, look again at its valuation:
Coke had a favorable valuation only in the 2008 crisis. Before, and after, it was always traded at a premium, always overvalued. If you decide to buy stocks when they are undervalued then you would never buy stocks like KO, or AAPL. You will be waiting for a better valuation of these stocks, you probably never buy. Or, you decide to give up and buy shares no matter what their valuation is.
But, what if you could buy those shares and it cost you nothing?
Trading options could help you buy shares for free. I sell puts and collect premiums. I take those premiums and reinvest in stocks I like. For example, last week, I sold an Iron Condor against SNOW… and I sold a strangle against MO:
Both trades expired worthless and I kept the premium. I used that premium and bought shares of AT&T (T) and ICSH stocks. I bought them for free. I used money the “house” paid me. Should I be worried about valuation?
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