Hello Smart Option Sellers! As we have a long weekend ahead of us, I just wanted to send out a quick update. Next week we'll see earnings season really start to kick in. I plan on going through the list each week to find any viable unofficial earnings plays that can continue to pay off for those of you who choose to partake. So far it's been pretty profitable. We started to see the market come off a bit this past week. This is a good thing as we need stocks to take a breather and get back to more "normal" ups and downs. It's healthy for the market to pull-back now and then as it takes the froth out of the system. This can help avoid those dramatic huge waves of selling that induces fear and panic. If the selling is gradual from time to time as it should be, then it makes investing that much easier. As far as our current and pending positions - keep holding as-is and keep working unfilled orders as GTC (good-til-cancelled). Friday Q&A Q: Lee, who are the people on the other side of our trade, and why would they pay for options that are so far away from the current price of the stock? Seems as if they're giving money away. A: This is one of the most popular questions I receive from new members, and one that's hard for them to wrap their brain around at first. First off, let's thank our lucky stars that these people actually exist! They've helped line my pockets (and yours) for long periods of time. Without them, there'd be no put-sell market for us to trade in. There are really two reasons for other investors to buy put options. 1. Outright speculation. This is our saving grace. Other investors believe that a stock is going to fall and they think they know when and where it's going to fall to. This is the hardest part about buying options. In order to be successful, you have to be absolutely sure to get both the direction and timing correct with your prediction. If you don't, the option expires worthless and you'll lose 100% of your investment. This is why we as option sellers have such high win rates, typically 90% or greater. Option buyers are wrong most of the time, as the stock never gets to their intended target within the expiration time frame. But to them, since they think options are relatively cheap ($.35 to $.50 in our trades), they probably don't care about losing the $35 to $50 per contract if they are wrong. That's why option buyers keep coming back. They hope for the big score and are willing to pay for those cheap options. Think about the Target and LULU options that some of you bought for huge gains. That's what all option buyers are hoping for every time. Unfortunately it doesn't happen. Remember the probability calculator I discussed in one of last week's alerts? It showed the Gap, Inc. (GPS) put-sell position that we're trying to enter had a probability of profit of over 93% for us. Most option buyers don't have a clue about those probabilities. As long as the option is cheap, they don't really care about the probabilities. Hey, more wins for us. 2. Portfolio hedging. Many investors have long stock positions in their accounts and are setting stop-out levels in order to lock in gains or stem potential losses. For instance, let's say someone bought a stock at $25 per share and it's now trading at $50 per share. If they want to preserve their built-in gains, they can choose an area in which to sell. They can do this by buying put options at strike prices that correspond to their sell point. If the stock is currently at $50, they may choose to buy a $40 put option. If the stock falls below $40 by expiration, they will be able to exercise the put option and sell their shares at $40. In most cases, if it's a quality stock, chances are probably slim that it will fall below $40. But for us, potentially buying this quality stock at $40 while it's currently at $50 would be a great trade. So what do we do? We sell that $40 put option, collect the cash, and wait to see where the stock ends up at expiration. If it's below $40 at expiration. then we get to buy it at $40 and the other person fulfills their stop-out and sells it at $40 and locks in their long-term gains. It's hard to say what percentage of option buyers are either speculating or hedging. There is no data that exists (as far as I know) that gives the breakdown. But in my opinion, and based on my experience within the option's trading world, I believe the majority of trades are done for pure speculation. This is better for us as most option speculators choose trades with very low odds of winning. That's all for today. Have a great weekend. You can always contact us here. Regards, Lee Let's Grab That Cash!
Important Messages: 1. I'm on Twitter! What does that mean? It means I will be posting some of my thoughts from time to time on items related to investing, the stock market and how to be a smarter options trader. If you are already a Twitter member, please go to the website and click on the blue Twitter "Follow" button that you'll see along the top header. This way you can read my tweets and have instant access to some of my other thoughts. And don't forget to "like" or "re-tweet" my posts. This helps increase the public's awareness of the great things we're doing at The Smart Option Seller. Don't worry, no one in the public will have access to any of our trading ideas, nor will I post any of our current trades for free. 2. Don't forget to read my new "Put-Selling Basics" guide. It's a great refresher for both experienced and new traders. It's totally free. You can find it on the website or just click here to read. 3. Many of you are not taking advantage of our phone text alert messaging system. If you'd like to be notified on your mobile phone when a new alert is about to hit your email inbox, join our text alert system by typing in your first & last name and mobile number here: 4. All alerts will be archived on the website under the "Archive" section which you can find along the top menu of the website. If you are a new member, please use this section to read past alerts to see what we've been doing. This is a password-protected area for Smart Option Seller members only. Your password to enter this area is smartoption. Please write this password down and keep it in a safe place. You will need it to access the Archives. 5. Don't forget about our Referral Program. See details here: As always, if you have any questions, comments or feedback, please let us know. Thank you! You can contact us here.
Smart Option Seller Portfolio
Important Notice: All opinions, recommendations and content published by Smart Option Seller, LLC ("Company" or "us" or "we") are solely for informational and educational purposes, and should not be considered personalized investment advice. Your use of any investment ideas provided by Company is your responsibility and should only be made after consulting with your investment advisor and reviewing the public filings and financial statements of companies you are considering for investment. We do not receive any compensation from companies we write about. By accepting a subscription to The Smart Option Seller newsletter, you acknowledge that all ideas discussed in the newsletter are solely for informational and educational purposes and you agree to hold harmless Company and all Company employees and representatives for any investment losses suffered by you arising from ideas discussed or recommendations made in the Smart Options Seller website or newsletter. You should not make any investment decision based solely on what you read in the Smart Option Seller newsletter. The information provided is obtained from sources which we believe to be reliable, but we do not guarantee the accuracy or completeness of any such information. We are not liable for any losses suffered by you as a subscriber. Past performance is not indicative of future results. Please plan accordingly. We expressly forbid our writers from having a financial interest in any security they personally recommend to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Company is not a broker, dealer or investment adviser. In addition, our employees may answer your general customer service questions but they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. See our full Terms-of-Use here