Profit Results & Trade Updates
Hello Smart Option Sellers! Procter & Gamble (PG) Profits are locked in on PG. We were able to get filled yesterday at our buy-back price of $.04 per contract. Here's what we did: Bought back (bought-to-close) all of the PG October 2017 $65 put options for an official buy price of $.04 per contract as a closing transaction (bought-to-close). We originally established (sold-to-open) this put option on May 4, 2017 for a sale price of $.22 per contract, and now we took gains by buying it back (bought-to-close) for $.04 per contract. With the fill at $.04, it locked in a gain of $.18 per contract ($18 for every contract traded) and a return on margin (ROM) of roughly 1.4% in just about three month's time. If you like to annualize, that's roughly a 5.6% return. If you are really following the numbers here, you can start to see how the ROM is higher when we use lower priced stocks, and the ROM is lower when we use higher priced stocks. This is just a function of the margin requirement. It doesn't take away from the actual dollar gains though. 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 $6,500 = $1,300. Your margin requirement at your broker may be slightly higher or lower. Ask them. So our margin requirement is $1,300 per each put option contract sold. Our profit on this trade is $18 for every contract sold. The return on margin (ROM) comes out to $18/$1,300 = 1.4%. The fill at $.04 also allowed us to capture 81.8% of the full profit potential ($.18 gain/$.22 full potential = 81.8%). 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 have not been filled on this trade yet, just keep your order working "GTC". It will only be a matter of time. Remember my observations in yesterday's alert - the offer price on this option slowly creeps down during the day. Have patience and you will get filled. Do not pay up! Stick to $.04 per contract. For those of you who did close out this trade successfully - congrats. Trade Updates Kellogg (K) We have not been filled yet on the K buy-back trade from yesterday. Keep working it "GTC". Earnings will be out tomorrow before the opening bell so we'll be holding through regardless. GoodYear Tire (GT) We continue to work our buy-back order on the GT October 2017 $24 put options for a buy price of $.05 per contract. This one's being stubborn with us, but keeping working it "GTC". Lowe's (LOW) Lastly, we have an open order to sell the LOW January 2018 $45 put options. We placed this order on July 21st right after Amazon announced they'd begin to sell Sear's Kenmore line of products on their website. This announcement by Amazon put the fear in many home improvement stores such as Lowe's & Home Depot. It knocked the wind out of these stocks and their share prices dropped on a very big overreaction. Taking a stab at a put-sell in that scenario is ideal, as long as the stock can stay down at that low price until we get filled. Unfortunately as I suspected, the move down was a big knee-jerk reaction and the stock moved back up swiftly, already surpassing the area where it fell from. This quick move did not allow us to get filled on a great trade. Grrr!!! Disappointing for sure, but we move on. Let's cancel this trade and look for other opportunities. Here's what you need to do: Outright cancel your sell-to-open order on the LOW January 2018 $45 put option. 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! You can always contact us here Regards, Lee Let's Grab That Cash!