I'm starting to understand options trading (I put it off for years, being intimidated by the concepts and scared off by people who have been burned by it in the past), but lately I've been reading up on it because I want more weapons at my disposal and I figure more information never hurt anything. Cutting through the jargon and the bullshit can someone just clarify an example for me? How I understand it: Lets say an S&P 500 company that pays a dividend is currently trading for $10. I like this company and feel like it's a bargain at $9. Because of this, I decide to write a put option. (I don't understand an average spread of timeline so bear with me). I say, I will buy these shares if they go to $9 or less. Until then, pay me my premium for assuming said risk. So if it stays above $9 and expires. Free money. If it goes to $5 and the contract is exercised, I must buy the shares. So my broker will add lets say the 100 shares to my account for 900$ so I'm clearly in the red for a few hundred. If I had just bought said stock like I normally would, at $9, (because it's a steal or so I believe). Getting the shares at that price, and keeping the free premium money anyway. What exactly is the downside here, assuming I don't leverage myself too far with liquid cash in my account? Also, can someone explain the general dividend situation here? Do I have to pay someone the dividend in the interim of the contract? Thanks and sorry if this post is derpy.