Trade Update - Merck
Hello Smart Option Sellers! Merck & Co. (MRK) We're officially filled on the Merck buy-back order that we placed yesterday. And, we even got it done at a penny cheaper than my recommended price. Oh yeah! Here's what we did: Bought back (bought-to-close) all of the MRK September 2017 $47.50 put options for an official buy price of $.05 per contract as a closing transaction (buy-to-close). Here's the final results: We originally established (sold-to-open) this put option on March 23, 2017 for a sale price of $.35 per contract, and now we took gains by buying it back (bought-to-close) for $.05 per contract. With the fill at $.05, it locked in a gain of $.30 per contract ($30 for every contract traded) and a return on margin (ROM) of roughly 3.15% in just under three month's time. If you like to annualize, that's roughly a 12.6% 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 $30 for every contract sold. The return on margin (ROM) comes out to $30/$950 = 3.15%. The fill at $.05 also allowed us to capture 85.7% of the full profit potential ($.30 gain/$.35 full potential = 85.7%). 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 cash to be put towards new trades. If you did not close this trade out yet (if you had the position to begin with), make sure to use my recommended price. Great job everyone! That's all for now. Continue to hold all other positions as-is. See the Current Portfolio below for current prices & instructions. You can contact us here Regards, Lee Let's Grab That Cash!