Why I Rarely Buy a Stock at Its Current Price: The Smarter Way to Invest

Most investors buy stocks or ETFs the same way a child picks candy off a shelf—paying whatever the sticker price says, without a second thought. But ask yourself this: Why settle for paying full price when you can get paid to wait for a bargain?

That’s precisely why I rarely buy a stock at its current price. There’s a better, smarter way—one that not only aligns with your price target but also pays you while you wait. It's called selling puts, and it’s one of the most underappreciated tools in an investor’s arsenal.

Why Most Investors Miss the Point

When you’ve identified a stock you want to own, chances are you have a price target in mind—one below the current market price. For most investors, the next step is straightforward: set a buy limit order at that price and hope the stock falls. If the stock dips to the limit price, congratulations, you’ve bought it. If it doesn’t, your cash sits idle, earning nothing.

That’s what I call a missed opportunity.

Selling puts flips this script. With this options strategy, you get paid to take on the obligation of buying the stock at your chosen price. Instead of waiting passively, you can actively generate income through options premiums. These premiums can lower your cost basis or serve as a source of cash flow.

If you’re not using this approach, you’re leaving money on the table.

How Selling Puts Works: A Smarter Alternative

Let’s break it down with an example.

Imagine you’re interested in buying Advanced Micro Devices (AMD), but the current price of $115 doesn’t appeal to you. You’d rather buy the already beaten stock even lower, for $100. A typical investor might set a limit order at $100 and call it a day.

But you’re smarter than that.

By selling a put with a $100 strike price, you agree to buy 100 shares of AMD at $100 if it falls to that level at expiration. For taking on that obligation, you’re paid a premium upfront. Think of it as creating your own "dividend," even before you own the stock.

Here’s how it could play out:

• The options chain for AMD shows that selling the March 21, 2025, $100 put option would earn you $2.84 per share, or $284 per contract (since each contract represents 100 shares).

• This trade generates a 2.8% return on capital over just 53 days. Annualized, that’s about 16.8% in premium alone.

• If AMD stays above $100, you keep the $284 without buying the stock. If it dips below $100 at expiration, you buy the stock—but with a cost basis of $97.16 ($100-$2.84), thanks to the premium you collected. That’s 15.5% discount to where AMD is currently trading at $115.

Selling Puts Over and Over Again: Lowering Your Cost Basis Every Time

Here’s where the real magic happens.

If AMD never drops below $100, you can simply sell another put at the same strike price (or lower, if you adjust your target). Every time you do this, you collect another round of premium, further reducing your effective purchase price.

For example:

1. First month: Sell the $100 put for $2.84 → Cost basis = $97.16

2. Next month: Sell another $100 put or another chosen strike for $3.00 → New cost basis = $94.16

3. Repeat this process over several months, continuously reducing your cost basis.

By the time AMD finally dips below $100 and you are assigned the shares, your effective purchase price could be significantly lower than $100—sometimes even 10-15% lower, depending on how long you’ve been selling puts.

This is what makes this strategy so powerful. Instead of sitting on idle cash, you’re generating yield while waiting for the stock to hit your price target.

Maximizing Your Returns: Small Details Matter

To maximize your gains when selling puts, avoid the rookie mistake of accepting the bid price without question. Instead, aim for just under the midpoint of the bid-ask spread.

For example, if the bid-ask spread for the $100 strike is $2.83–$2.87, set your limit price around $2.85. Over time, these seemingly small adjustments—$0.02 here, $0.05 there—compound into significant returns.

This discipline separates seasoned investors from amateurs.

Why Selling Puts Outshines Limit Orders

Think about this:

If you sell a $100 put, you lower your cost basis to $97.16. That’s 15.5% below AMD’s current trading price of $115. You can continue selling puts month after month, generating income until the stock hits your price target—or even below it.

Now compare that to setting a static limit order at $100. You earn no income while you wait, and you lock up capital without any return. That’s a textbook example of opportunity cost.

Selling puts lets you turn patience into profitability.

Understanding the Risks

Of course, no strategy is without risk. Selling puts comes with the obligation to buy the stock if it falls below the strike price. In our example, if AMD drops sharply below $100, you’ll still have to buy it at that level, even as the market price falls further.

However, the premium you collected provides a cushion. In this case, your breakeven point would be $97.16. As long as AMD doesn’t fall below that, you won’t lose money on the trade.

The Takeaway

Most investors blindly follow conventional wisdom, buying stocks at market prices or placing limit orders without considering alternatives. Selling puts is a more thoughtful, strategic approach. It allows you to:

1. Generate income while waiting for your price target.

2. Lower your cost basis if you end up buying the stock.

3. Achieve higher returns by avoiding idle capital.

In a world where so many investors chase performance, selling puts offers a refreshing way to take control of your portfolio. It’s not just about buying stocks—it’s about buying them intelligently.

Next time you’re tempted to set a limit order, ask yourself: Why settle for standing in line when you could get paid to wait?

Coming Next: The Wheel Strategy

Selling puts isn’t just a stand-alone strategy; it’s often the first step in a broader approach known as the wheel strategy. In my next article, I’ll dive into how this powerful method combines selling puts and covered calls to create a steady stream of income while managing risk. Whether you’re new to options or looking to take your portfolio to the next level, the wheel strategy offers a structured, repeatable process for generating returns. Stay tuned—you won’t want to miss it

Thanks for reading, and as always, trade smarter, not harder. The wheel strategy awaits!

Andy Crowder

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