Chalk Up Another Winner - HACK
Chalk Up Another Winner! Hello Smart Option Sellers! Before we get to the trade results, let me post the housekeeping updates I mentioned yesterday. I will keep this notice here for the rest of this week's alerts. The Warren Buffett report that I've had for sale on the site, and which I include a link at the bottom of every alert, will be going up in price from $10 to $49 this Friday at 5pm EST. If you have not purchased it yet for the $10 price tag, now's your last chance. Also, please have a look at my Blog that I update quite frequently. It has my thoughts on various investing items and answers to many questions about options trading. It's a great way to get more insight into what I'm thinking and what people are asking about. Have a look from time to time if you want, and please help me spread the word. You can share each Blog post to your own Facebook or Twitter page by clicking on the social buttons at the bottom of each post. You can make comments, and please, tell your friends about us too by forwarding the link to anyone you feel would benefit. This will help the Smart Option Seller gain traction and recognition in the online option's world. My goal is to raise our visibility and let others know about the great things we're doing here. All help is appreciated! Thank you! Now, onto the trade results. Hack Cyber Security ETF (HACK) We had no problem closing out the HACK put-sell position yesterday at our price of $.05 per contract. Anytime one of our put-sell trades reaches my "80% Rule" threshold area, we look to take profits. Here's what we did: Bought-back (bought-to-close) all of the HACK December 2017 $24 put options for an official buy price of $.05 per contract as a closing transaction (bought-to-close). There were actually some fills that went across the tape at $.04 per contract, and a bunch of Smart Option Seller members had even emailed me last week to let me know they had already been filled at $.05 per contract. How did they do it before I gave the official instructions? Because they placed GTC limit buy orders at $.05 per contract on their own, well before I gave the go-ahead. They are being pro-active with their trades and setting these trades up as soon as they've been filled on the original sell-to-open order. I applaud my members who do this, as I feel that my teaching methods have rubbed off on them and they have become smarter traders. Officially, as I've mentioned in the past, we won't place the buy-to-close orders as a group until I actually see the offer price that we need. I don't like to pre-announce, or give away, or tip off our intentions to the market by placing the limit buy-to-close order until the time is right. If we did, the market-makers know we are there wanting to buy at $.05 per contract, and many times they will not fill our orders just to piss us off. They will hold out as long as possible. Think about that for a minute. If you have a product that you know everyone wants to buy, you're more inclined to hold out for a better bid, hoping that someone will pay more for your product. It's the same with the options market. If the market-makers see that we have a standing bid in the market, they will hold out as long as possible waiting for us to potentially buy at their higher asking price. But, if we never show our intentions in the first place (by not placing the buy order until the time is right), the market-makers are apt to show us a better offer price in which we can swoop in and buy up when it's hit our desired levels. Make sense? Still, you can do what you want. If you feel like placing the buy-to-close order well ahead of my instructions, then by all means go for it. Officially, we wait until later. Congrats to everyone who got filled on this trade. Here are the profit details: We originally established (sold-to-open) this put option on July 28, 2017 for a sale price of $.27 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 $.22 per contract ($22 for every contract traded) and a return on margin (ROM) of roughly 4.6% in just under three month's time. If you like to annualize, that's roughly an 18% 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 $2,400 = $480. 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 $480 per each put option contract sold. Our profit on this trade turned out to be $22 per each put option contract sold. Hence, the return on margin (ROM) comes out to $22/$480 = 4.6%. Also, the fill at $.05 allowed us to capture 81.5% of the full profit potential ($.22 gain/$.27 full potential = 81.5%). 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 $.27 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 order working "GTC" at $.05 per contract. It will only be a matter of time until you are filled. That's all for now. Continue to reach us here Regards, Lee Let's Grab That Cash!