Trade Results, Friday Q&A And Another New Trade!
Hello Smart Option Sellers! We've been super busy here lately at The Smart Option Seller. Been taking profits and trying to enter new trades. Fine with me. I'd rather be busy than bored. I hope everyone else is enjoying the ride. PureFunds ISE Cyber Security ETF (HACK) Another winner locked in. We were able to get filled on the HACK buy-back yesterday for $.05 per contract. Here's what we did: Bought back (bought-to-close) all of the HACK September 2017 $23 put options for an official buy price of $.05 per contract as a closing transaction (bought-to-close). We originally established (sold-to-open) this put option on March 17, 2017 for a sale price of $.25 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 $.20 per contract ($20 for every contract traded) and a return on margin (ROM) of roughly 4.3% in just over four month's time. If you like to annualize, that's roughly a 12% return. This was our longest trade to date so far, with most others being at three month's time or under. 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 $2,300 = $460. Your margin requirement at your broker may be slightly higher or lower. Ask them. So our margin requirement is $460 per each put option contract sold. Our profit on this trade is $20 for every contract sold. The return on margin (ROM) comes out to $20/$460 = 4.3%. The fill at $.05 also allowed us to capture 80% of the full profit potential ($.20 gain/$.25 full potential = 80%). We like to close trades early before expiration when we can capture at least 80% of the full profit potential (my "80% Rule"). No sense in holding until September (expiration month) if we've captured a majority of the gains. It frees up margin money we can put towards new trades. Great job everyone! Which now leads us to our.... New Trade! Surprise! PureFunds ISE Cyber Security ETF (HACK) Yup, we're going right back in with another put-sell trade on HACK. Cyber security should be at the top of everyone's list these days if you do any kind of transactions online. Heck, just being connected to the internet is risky in itself. My word of caution to many of you: never, ever, ever click on an attachment in an email that you are not sure about. Most likely it is a scam or phishing attempt. Once clicked on, that link will unleash a program (or virus) that can take over your computer, infect your files and/or possibly be able to access accounts that are typically used with a username & password. Be especially wary of the emails that look legit coming from your bank or credit card company. If they ask for any personal information, DO NOT respond back. If you do, it's game over, and they'll quickly steal your hard earned money. It's better to pick up the phone and call your bank to see if they truly needed to get in contact with you. Have I scared you? Good! Being safe online is something we've probably all have taken for granted. Be vigilant with your online activities. Use hard-to-remember passwords, don't click on suspicious links, and don't give out personal information. So, with all that said, I believe it's also truly important to have stock market exposure to cyber security stocks. And there's no better way to do that than to get a piece of the major players in one shot. Selling puts on HACK is how we're going to do it. Here's what you can choose to do: Sell (sell-to-open) the HACK December 2017 $24 put options for a limit sell price of $.25 per contract or higher, GTC, as an opening transaction (sell-to-open). Currently, this put option has a small market of $.25 bid/$.50 offer, so we should be able to sell a handful right off the bat. Remember my usual advice - be cool about placing your offer. Start at a $.40 offer price and wait a bit. Let the buyers come to you, especially if the stock is falling. If no one bites, then you can move down to $.35, then $.30, and then finally sell at $.25 per if you have to. Bottom-line, do not sell for anything less than $.25 per contract. HACK stock is currently at $29.75 per share, which puts it a solid $5.75 above our $24 strike price. This also gives us a nice 19% cushion for any more downside action. Get those orders in there and I'll go over the results on Monday. Trade Results GlaxoSmithKline (GSK) It took a little while, but everyone should've been filled yesterday on the new GSK put-sell for at least $.25 per contract. I received word from a number of Smart Option Seller members that they were filled at $.28 & $.29 per contract. They were the early birds to the trade. The rest of you were executed at $.25 per. Here's what we did: Sold (sold-to-open) the November 2017 GSK $36 put options for an official sale price of $.25 per contract as an opening transaction. I would've liked to have been filled at $.30 per contract, but the market has been so stubborn lately. With the stock down a tad this morning though, you may be able to get filled at $.30 per contract if you haven't placed your order yet. As I've mentioned many times before, volatility in the general market as defined by the VIX, is scraping along all-time lows. Click here to see its chart. The VIX measures the mood of the market and whether people are scared or complacent. An extremely low VIX, like we have now, signifies that everyone is happy and calm and the market is rising in an orderly fashion. This can hurt option sellers like us, as the volatility is a direct component in the pricing of options. If volatility is low, option prices are cheaper, meaning we get less money when we sell put options. And in reverse fashion, when there is fear and panic in the market, volatility will blast higher, causing option prices to spike. We like that. This typically happens whenever we see severe down-moves. Although each specific stock has their own volatility component which is different than the VIX, and can move the individual options on that stock in a different direction than the general market, we can still use the VIX as a good gauge of the overall mood. In summary, if you have not been filled on the GSK put option, make sure your order is working "GTC". Friday Q&A It's been awhile since we've done a Q&A session. I'm chalking that up to the fact that many of you already know the put-selling system and how I operate it. This is mainly due to your past experience with Instant Money Trader (my previous service). But, if you have any questions or comments that could benefit the whole group, please send it in. Q: Hi Lee, Question : why do you alert GSK while it's only 12% Out-of-the-Money? ... that's pretty risky for a biotech stock (even though it's one of the majors). A: As mentioned in yesterday's alert, I always love the opportunity to sell put options on the major pharmaceutical companies. We've had exposure to almost all of them in the past - BMY. PFE, MRK & LLY. Stepping into a put-sell trade for GSK was done only after the fact that the stock had already fallen roughly 10% from its recent high, and earnings are now behind them. With GSK stock sitting near $40.55 per share, it still gives us another 10% cushion below its already oversold levels. My take is that I see GSK consolidating here for a bit as all the news settles and most likely will begin an upward trajectory when people realize the cheap stock price. There's solid support too on the charts in the low to mid-$30s, so I feel we've gotten into a great trade. Remember, these are only my opinions and guidelines. You are more than welcome to not enter the trade if you feel it's not right for you. Or, you can alter the strike price and/or the expiration date to fit your needs. Thanks for the question. Q: What is the possibility of creating some trades where the contracts can be booked in the $0.35 to $0.45 range? It would make (for example) a 10 contract trade a lot more attractive. A: Believe me, I want that more than anything. The fact is, as stated in the comments above on the GSK trade, volatility is just super low right now and it's taking option prices with it. You have to understand how important volatility is in the pricing of options. Now, we could certainly choose put-sell trades in the $.35-$.45 range, but then we'd be choosing strike prices that are closer to the stock price than we'd like, which gives us less cushion for error. My number one rule is safety first. If that means giving up a few pennies of profit in exchange for more safety and cushion, I'm going to do it every time. To help combat this, you are more than welcome to choose a different strike that pays more money if it meets your requirements. We have plenty of members who do that and they write to me all the time about it. If you're cool with it, I'm cool with it. Lastly, thanks to one of our great Smart Option Seller members, he informed me that if you use Schwab as your broker, they now do not charge any commissions for any buy-to-close orders executed for $.05 or less. This is great news. Thank you for bringing it to our attention. This is already happening for us as we've bought back a number of trades for $.05. So if you're using Schwab, this is an extra bonus. That's all for now. You can always contact us here Continue to work all other trades as instructed and continue to hold all other open positions as-is. See the Current Portfolio below for current prices & instructions. Quick note on the Current Portfolio - if you are a new subscriber and don't have a position yet on any of our trades, make sure you enter your order at the original recommended sell prices. Do not enter any order at current prices unless it's higher than the official recommendation. If you are unsure or have any questions, please ask us! Have a great weekend! Regards, Lee Let's Grab That Cash!