Portfolio Update And Friday Q&A
Portfolio Update Hello Smart Option Sellers! Happy Friday! Anyone else hit by this horrible flu bug? It's pretty much swept through my house. A couple sick kids here and my spouse too. No fun! If you have been affected, I hope it wasn't too miserable, and if you currently have it, I wish you a speedy recovery. Glad it's the weekend. Congratulations to many of you who wrote me that you engaged in the unofficial Facebook put-sell trade yesterday. Although I won't be following it, I have a very good feeling it will be a profitable trade. We currently have eight official put-sell positions on the board and all of them are currently in the black (or green!). Our most recent play - the Kellogg June 2018 $52.50 put options - are somewhat near our entry price, and for any new member who has recently joined us, you may be able to still get into the trade. Check the Current Portfolio below for instructions on what to do. Always make sure to place your initial sell order at the same price or higher as our official entry price. Check the current bid/ask market for the put option before entering the trade. For instance, if we sold the put option for $.25 per contract, make sure you place your sell order at $.25 per contract as well, or higher (if it is currently trading higher than $.25). If the bid/ask market on this put option is $.35 bid/$.45 offer, you at least know you can sell it for $.35 per contract, which would be $.10 higher than where we sold it. That would be good for you. Continue to hold all trades as-is for now. Time marches on, and that is our best friend as option sellers. Each day that passes, the option price loses a little bit of value regardless of which way the stock moves. This is called "time decay", and it's one of the components that helps us make money. How do we make money? By eventually buying back the put option at a cheaper price than where we originally sold it. You all know this, right? I'm pretty confident that we'll be able to close out some of our current trades in the next few weeks and lock in our first profits for 2018. Stay tuned... Friday Q&A Q: hi lee, you mentioned the 80% rule on when to cover. What is the 80% rule A: The "80% Rule" is my trigger on when to buy back the put options to lock in a profit. Once the put option price has decayed 80% from our entry price, we place an order to buy it back. For instance, if we sold the put option for $.25 per contract, we would look to buy it back once it has fallen in price to $.05 per contract. This will lock in 80% of the full potential gain, usually months before expiration. It's smart money management and allows us to free up margin money to put towards new trades. Q: Lee, I trade with Fidelity and they will only allow me to put in a "buy to close" limit in .05 cents increments. With an option closing and trading at .06, I can't get a trade done at .05. The question is - If I place a offer at .10 will it trade at .06 or is there another way to get the trade at .06??? A: Certain options contracts will only trade in five cent increments, so penny trading is not universally available.. Now, if Fidelity is actually not allowing you to trade an option that truly trades in penny increments, then it's time to have a talk with Fidelity. Tell them to get on the ball! You may want to consider having a secondary brokerage account if this is the case. I have multiple accounts and so do many of our members. If you placed a $.10 bid for example, and the marketplace was offering it at $.06 (even though Fidelity wouldn't let you place a $.06 bid), I would have to believe you should get filled at $.06 per contract. But you may need to talk with Fidelity about that. I had mentioned in an alert from months ago, that certain brokers will allow you to place orders in penny increments within their own system even though the option officially trades in five cent increments on the exchanges. This would allow another customer of the same brokerage to be matched up with the original customer if both of their buy/sell orders happened to match each other. Let's say a put option has a $.05 bid/$.10 ask market. Customer A of Fidelity wants to buy the option for $.07 per contract and Customer B of Fidelity wants to sell it for $.07 per contract. These two customers would be matched up internally and get filled on the trade, without knowing who the other person is. I'm not sure if this is available at every broker, so it's best to give a call. Q: Hi Lee, rather than cancel the order altogether when the market makers were playing with us, I just left a GTC order yesterday to sell those June K puts for 0.30 and got it today! Would it have been better to pull right out then come back in as you suggested? And also I guess there could have been a chance to get the sale for higher than the 0.30 if the price of K dropped enough A: This questions is in regards to our Kellogg trade from last week. I had everyone pull their original orders because I felt the market-makers were playing games with us. Once we did that, the "real" bid/ask market came to light and we were able to get filled at better prices. In your specific case, it probably would've helped if you pulled your order too, only because trades were then going through at $.35 & higher. No worries though. In the end, you still got a good price. Q: Hi Lee Whats the most critical point for a position whether my position should be filled in or not. Is it something to do with Bid and Ask price? A: Making sure you place your order at the proper limit price is a very critical factor on whether you will get filled or not. As part of The Smart Option Seller, I will always guide you with the best strategy to do that. Knowing where the stock is trading, how much time is left to expiration, and where the volatility lies, will all help with knowing where to place your buy & sell limit orders. Well, that's all the questions for today. I mentioned yesterday that I would comment about possible ideas for a secondary service. I'm wrapping up some data collection and calculations and will get back to everyone about it next week. Continue to contact me here Have a great weekend! Regards,
Lee Let's Grab That Cash!
Current Portfolio 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. 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 no enter any order unless the current option price is at, or higher, than the official recommendation. If you are unsure or have any questions, please ask us!