Profit Locked In
Profit Locked In
Hello Smart Option Sellers! General Mills (GIS) For the small handful of Smart Option Seller members who had the GIS put-sell position in place, we were able to close it out successfully yesterday at the recommended price of $.06 per contract. I had mentioned in yesterday's alert that the put option was lightly offered at $.06 per contract, and so we were able to grab those few. As of now, the put option has a bid/ask market of $.05 bid/$.09 offer, so if any of our members were still trying to buy this option back at $.06 per contract, I'd be seeing a $.06 bid in the market. Since I don't, then we will call this one officially closed and mark it as complete. Here's what we did: Bought back (bought-to-close) all of the GIS July 2017 $47.50 put options for an official buy price of $.06 per contract as a closing transaction (bought-to-close). We originally established (sold-to-open) this put option on February 17, 2017 for a sale price of $.34 per contract, and now we took gains by buying it back (bought-to-close) for $.06 per contract. With the fill at $.06, it locked in a gain of $.28 per contract ($28 for every contract traded) and a return on margin (ROM) of roughly 2.9% in four month's time. If you like to annualize, that's roughly a 11.8% return. Here's how the margin calculations break down: Whenever we sell an option contract, your broker requires you to maintain a "margin requirement". The margin requirement is just part of your account funds that need to be held aside while the trade is active. You are not borrowing money from anyone nor are you paying margin interest to anyone. The margin requirement is typically 20% of what it would cost to buy 100 shares of the stock at the strike price. In this case: 20% x $4,750 = $950. Your margin requirement at your broker may be slightly higher or lower. Ask them. So our margin requirement is $950 per each put option contract sold. Our profit on this trade is $28 for every contract sold. The return on margin (ROM) comes out to $28/$950 = 2.9%. The fill at $.06 also allowed us to capture 82% of the full profit potential ($.28 gain/$.34 full potential = 82%). We like to close trades early before expiration when we can capture at least 80% of the full profit potential (my "80% Rule"). This is just smart money management and it allows us to lock in gains and free up money to be put towards new trades. Although I'm glad we had another winner, I'm not completely satisfied with it only because we couldn't get full participation from the rest of the group. Sometimes the markets move too quickly and will cause the option prices to get away from us. This happens on occasion. But rest assured, there are always new opportunities around the corner. Our newest Verizon (VZ) put-sell trade is still viable at my recommended prices, so if you haven't entered the trade yet, you can still do so. For any of our newer members, you can always check the Current Portfolio in the Members-Only section of the website to see the latest updates. That's all for now. You can always reach us here Regards, Lee Let's Grab That Cash!
