Trade Update And More Profit Time
Trade Update - Five Below (FIVE) Hello Smart Option Sellers! Yesterday we placed a new put-sell trade on FIVE, and I will say that I'm quite disappointed on how it turned out. Not because it was a bad trade, but because how the option market-makers would not fill the majority of our orders. This was extremely frustrating, considering what the bid/ask market was showing before we entered the trade. As I mentioned in yesterday's alert, I couldn't decide between the $38 & $39 puts because both were showing a $.20 bid/$.35 offer. I opted for the $39 puts because those should be priced higher and it would've given everyone a better chance to get filled. And usually, when you have a $.20 bid/$.35 ask market, it is almost a definite that you will get filled if you place your sell price at $.25 per contract, which is very near the $.20 bid. Market-makers are happy when you place your sell trade very close to their bid price. We're practically giving them what they want. And then they don't fully trade with us? Angry is a very nice word to describe the way I was feeling when the market-makers wouldn't budge and fill more of us at $.25 per contract. I've attached two snapshots below of the "Time & Sales" (T&S) report from two points during the day for our trade. A T&S report shows all the bid/offers/trades that occur for an option at any point during the trading session.
I wrote up the alert near 10:45am ET yesterday and should've hit most of your email inboxes a tad after 11am ET. This first snapshot shows the market for the $39 put options from 10:10am ET until 11:12am ET. During that stretch, you can see the bid/ask was $.20 bid/$.35 ask, with two trades occurring at $.25 (our price) at 11:11am ET for a total of 41 contracts.
This next snapshot is the T&S from 1:30pm ET until 3:30pm ET, which shows how the market remained at $.20 bid/$.25 offer. Those are our offer prices, and none could get filled. Stubborn market-makers! At this point, we'll take the small fill at $.25 per contract as our official trade, but I'm not happy that so few were executed. Let's leave our standing GTC orders in there for today to see if anything happens. We would definitely need the stock to drop a bit if we want a chance to get filled (stock drops = put option pops). If nothing happens for us, I will consider moving the trade to the $40 or $41 put option. This would still give us at least a $25 or $26 per share cushion against the current $66 stock price. That's about a 39% fall FIVE would have to plunge in the next five months. Even the probability calculator below shows that the chance of FIVE dropping to $41 is a measly 3.14% chance (see bottom-left box). I'll take those odds any day.
Here's what we did: Sold (sold-to-open) the FIVE May 2018 $39 put options for an official sale price of $.25 per contract as an opening transaction (sold-to-open). Let's continue to work our GTC orders for the $39 puts and see what happens.
Profit Time - Verizon (VZ) We currently have a put-sell position on VZ that has decayed down very close to my "80% Rule" threshold. It's sitting right on the 77% decay mark, and considering that it's still four months away from expiration, the smart thing to do would be to lock in our gains here. Here's what you can choose to do: Note: If you have this 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. Buy back (buy-to-close) all of your VZ April 2018 $35 put options for a limit buy price of $.06 per contract or cheaper, GTC, as a closing transaction (buy-to-close). Currently, this put option is offered at $.06 per contract, so we should have no problem getting filled right off the bat. If we truly wanted to get to that 80% threshold, we'd have to buy the put option back at $.05 per contract, but quite frankly, I don't think we need to wait for that, just to lock in an extra one penny of profit. So get those orders in now and I will go over the results tomorrow. That's all for now. You can contact me here with your results. Regards,
Lee Let's Grab That Cash!