Trade Results - GPS
Trade Results - GPS
Hello Smart Option Sellers! Before I talk about the GPS trade, I want to say thanks to the sharp eye of a loyal Smart Option Seller member who alerted me to the mistake in the Issue # from yesterday's alert. I had the alert pegged as Issue #89, but it was really supposed to be #87. Thank you for bringing that to my attention. Today's alert is #88, and the real #89 will be soon enough! Let's go over yesterday's results from the buy-back trade. Gap, Inc. (GPS) We successfully closed out another profitable trade. If you had the GPS put-sell position already in your account, then you were able to get filled at my recommended price of $.06 per contract yesterday. Here's what we did: Bought back (bought-to-close) all of the GPS September 2017 $17 put options for an official buy price of $.06 per contract as a closing transaction (bought-to-close). Here's the final results: We originally established (sold-to-open) this put option on April 18, 2017 for a sale price of $.32 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 $.26 per contract ($26 for every contract traded) and a return on margin (ROM) of roughly 7.6% in two and a half month's time. If you like to annualize, that's roughly a 36% return. Here's how the margin and profit return 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. If it helps you to understand the concept better, think of the margin requirement as your "investment" in the trade (even though we are not "investing" any money). 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 $1,700 = $340. Your margin requirement at your broker may be slightly higher or lower. Ask them. So our margin requirement is $340 per each put option contract sold. Our profit on this trade is $26 for every contract sold. The return on margin (ROM) comes out to $26/$340 = 7.6%. This is the best way to understand what kind of return you are getting when selling options (calls or puts). Obviously, as many of you may be aware, the lower the strike price, the larger our ROM will be. That's because the margin requirement is much smaller when you pick lower priced stocks. The fill at $.06 also allowed us to capture 81.25% of the full profit potential ($.26 gain/$.32 full potential = 81.25%). 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 the recommended price. Great job everyone! Continue to hold all other positions as-is. See the Current Portfolio below for current prices & instructions. That's all for now. You can always contact us here Regards, Lee Let's Grab That Cash!
