Friday Q&A

Friday Q&A

Hello Smart Option Sellers! Before I get to the questions, let me make a quick comment on today's two new put-sell trades on Procter & Gamble (PG) and Colgate Palmolive (CL). Both option prices went quickly right to the low end of our sell price range of $.25 per contract. Although I thought we'd be able to sell some at $.25 per, no one was biting. A little frustrating, I understand. Let's give it another day or two and see how it plays out. As I've mentioned a few times before, options trading takes a little more patience and finesse sometimes. Since option prices are very dependent on the stock's price, we would need a quick blip down in each stock to help our cause. Let's reassess early next week. Friday Q&A Q: Re: 80% Rule. After a trade is completed, wouldn't it be a good idea to place a limit order to Buy to Close your position once it declines to 20% of it's original value? Therefore locking in a profit of 80% in each position. A: Good question, and this relates to my 80% Rule which states we look to take profits on a put-sell play if the put option declines in value by 80%. Yes, you can certainly place your buy-back order as soon as you're filled on the sell-to-open order. It's a smart move as a "set it and forget it" trade. But, there's a reason why I don't like to do that. Once you set your GTC buy-to-close order, it's out there for the market-makers to see, and they know you're waiting there with a bid in the market. It can actually work against you as far as time-wise. Let's say you sold a put option for $.35 per contract and then place a buy-to-close order for $.05 bid. The market-makers will see your $.05 bid sitting there and will t