Profits Locked In!
Profits Locked In!
Hello Smart Option Sellers! Lots to discuss today, so read through the whole alert, even to the Warren Buffett section. Verizon (VZ) We had no trouble getting filled on our profit-taking trade yesterday on Verizon. Here's what we did: Bought back (bought-to-close) all of the VZ October 2017 $39 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 June 9, 2017 for a sale price of $.28 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 $.23 per contract ($23 for every contract traded) and a return on margin (ROM) of roughly 2.95% in just over three month's time. If you like to annualize, that's roughly an 11% 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 $3,900 = $780. Your margin requirement at your broker may be slightly higher or lower. Ask them. So our margin requirement is $780 per each put option contract sold. Our profit on this trade is $23 for every contract sold. The return on margin (ROM) comes out to $23/$780 = 2.95%. The fill at $.05 also allowed us to capture 82% of the full profit potential ($.23 gain/$.28 full potential = 82%). When selling options (calls or puts), your full profit potential is capped at what you initially sell the option for. In this case, that amount is $.28 per contract. 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" to buy at $.05 per contract or cheaper. Congrats to everyone who was involved with this one. Gap, Inc. (GPS) We also have a put-sell position on GPS that we initiated just three weeks ago. It has already reached the "80% Rule" threshold. Considering that the monthly Retail Sales Report is being released tomorrow morning before the opening bell, let's see if we can lock this one in today if we can. The Retail Sales Report gives an idea of how retailers have performed over the previous month. Considering the state of certain department stores and other brick & mortar retailers of late (the Amazon effect), it's always wise to try to lock in the gains in case the report takes the wind out of some of these stocks. I really don't see GPS affected too negatively, hence, I would not recommend the stock if I felt it was doomed by Amazon. Plus, the stock has been on a tear lately. It has jumped $4 per share in just the last two weeks. See the chart here. But since there could be some profit-taking, let's see if we can buy it back and lock in the gains. Note: If you have the GPS put-sell position in your account, then you will execute the buy-back order today. If you don't have the position, then you can disregard these instructions. Here's what you can do: Buy back (buy-to-close) all of your GPS January 2018 $17 put options for a limit buy price of $.05 per contract , GTC, as a closing transaction (buy-to-close). Currently, this put option has a market of $.04 bid/$.07 offer, so there's no guarantee we'll get filled. It has traded at $.05 a few times already, and I have received email confirmation of this from other Smart Option Seller members (thank you!). If we don't get filled, we'll probably pull the bid as I don't want us showing our hand to the market-makers for the time being. Now, if you're concerned about the Retail Sales report and GPS possibly falling, here's an unofficial trade recommendation if you want to take a one-day cheap stab on a possible trade. Look to buy the GPS September 15, 2017 $27 or $27.50 put options for $.05 or $.10 per contract. This is a super cheap play that expires end-of-day tomorrow. If you want to get involved, you have to buy it before the close of trading today. GPS stock is currently at $28 per share, so the stock would have to drop more than $1 per share tomorrow in order for this trade to work out. I'm not expecting any major moves from GPS, and it's still $11 per share above our put-sell strike price of $17. If you buy one of these put options for tomorrow, please make sure you stay under $.10 on the cost, and don't put too much money behind it. It's very speculative and there's only one day to be right about it. I wouldn't want you to give up the gains already built up in the put-sell. That's all. Let us know if you get filled on any of these trades (the official and unofficial). I'm here to discuss all the many different scenarios and give you different ways to play the outcomes. You can reach 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 unless the current price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us! Warren Buffett Report I continue to get good feedback on this new report, so I'll keep this notice going for the time being so everyone has a chance to see it. Here's a fresh article about Warren Buffett that might give you another reason to have a look at my report. If you need the link again, click here to read about it. Regards, Lee Let's Grab That Cash!
