At some point, you'll be able to buy OHI, SBRA, EQR, VTR, or MAA by selling a put for 10-15% of the price and getting assigned at an even cheaper price than you'd have been willing to buy them.
Can you explain this like I am 5?
Word says it's 10th grade level. Sorry, best I could do. :)
A put option is a contract that gives its owner the right, but not the obligation, to sell a stock to someone else on or before the contract's expiration date and at the price agreed to in the contract. You can buy a put contract if you want the right to sell your stock to someone else in the future at a fixed "strike" price. On the flip side, you can sell a put contract and get cash in hand. In return you might be forced to buy someone else's stock in the future at the contract's "strike" price.
For example, healthcare REIT Ventas has a current price of $27.32 per share. If you owned 100 shares of Ventas worth $2732, and were worried that your stock might plummet, you might buy a put option. There are many possible contracts you could buy, but say you choose the contract expiring August 21, 2020 at the $25 strike price. The current price for that contract is about $6.65 per share, or $665 for one contract covering 100 shares. This contract would cost you a significant amount of money, but would insure you against even bigger losses. If Ventas goes below $25 per share, you would "exercise" your put and make the other person buy your shares for $25 each. In this way, you've put a floor on your losses. Ventas could go to zero and you'd still get to sell for $25. If Ventas stays above $25, you would choose not to exercise your right to make the other person buy your stock for $25, because you could get a better price in the open market.
Yet, that's some expensive insurance! The $665 cost for a contract protecting your position from being worth less than $2500 is 27% of the amount protected! In times of panic, like now, the price of options goes up.
Maybe instead of buying the put contract to protect your stock, you should get rid of the stock, set aside $2500 in cash, and then sell the put contract? The worst thing that could happen is you get $665 in cash given to you, and then you are forced to buy Ventas in August for less than it is currently worth ($25 instead of $27.32). Actually, another bad thing that could happen is Ventas zooms up to $50/share and the put option you sold expires worthless (because the person who bought your contract would rather sell their shares in the open market for $50 than sell to you for $25). Then you keep the $665 but missed out on much bigger gains from the stock's appreciation. A critic might say you took on most of the risk and only $665 reward.
My comment was that for people thinking long-term - and assuming Ventas doesn't go bankrupt - you could sell the put contract and either make 27% in 5 months or get to purchase a stock at a very cheap price and then wait for the recovery. In the example above, if you sold the put option, you'd get $665 in hand today and then you might or might not have to pay $2500 for the 100 shares in August. Thus if the contract is exercised, your overall cost would be 2500-665=1835. This would be the same end result as paying $18.35 per share for Ventas, instead of buying Ventas now for $27.32.
For someone getting close to retirement, this means you could obtain (27.32-18.35)/27.32 = 33% more shares than you could afford right now. For an REIT like Ventas, that means 33% more dividend income! So in theory, one could play a smallish retirement portfolio in a way that locks in higher income for retirement. Of course, one wouldn't bet it all on one stock or industry. Deals like this are all over the place amid the current crisis, so you'd build a diversified portfolio with dozens of stocks.
