Trade Results - GSK

Trade Results Hello Smart Option Sellers! GlaxoSmithKline (GSK) We were able to get filled on the GSK buy-back order yesterday at our price of $.05 per contract. Here's what we did: Bought-back (bought-to-close) all of the GSK November 2017 $36 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 July 27, 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 2.8% in just under three month's time. If you like to annualize, that's roughly an 11% return. To understand how the margin works and the calculations involved, here's the breakdown: Whenever we sell an option contract, your broker will require you to maintain a "margin requirement". The margin requirement is made up of funds that are already in your account and will need to be held aside while the trade is active. You are not borrowing money from anyone nor are you paying interest to anyone. Some people can confuse the margin requirement with "trading on margin". They are completely different things. We are not trading on margin when selling put options. 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 $3,600 = $720. Your specific margin requirement at your broker may be higher or lower than that. If you are unsure, just ask them. So for this trade, our margin requirement is $720 per each put option contract sold. Our profit on this trade turned out to be $20 per each put option contract sold. Hence, the return on margin (ROM) comes out to $20/$740 = 2.8%. Also, the fill at $.05 allowed us to capture 80% of the full profit potential ($.20 gain/$.25 full potential = 80%). When selling options (puts or calls), your full profit potential is capped at what you initially sell the option for. In this case, that amount is $.25 per contract. We like to close trades early (buy-to-close) before expiration when we can capture at least 80% of the full profit potential. This is called my "80% Rule". This is just smart money management and it allows us to lock in gains and free up cash to put towards new trades. If you did not place your trade yet, or did not get filled yesterday, just keep your trade working "GTC" at $.05 per contract. Congrats to everyone who was involved with this one. Quick note: earnings season is getting underway so I'll start looking for more "unofficial" earnings plays for those of you who want to take a stab at these more aggressive and potentially lucrative trades. These are completely optional trades and will entail buying both cheap call options and put options to take advantage of possible explosive moves in the stocks after earnings are announced. They are quick hits that last one day only and the gains (or losses) are known immediately. That's all for now. Continue to reach us here Regards, Lee Let's Grab That Cash!