Friday Q&A Hello Smart Option Sellers! Another wild day in the markets. To reflect, the Dow Industrials started the day up 350 points, went down to negative 500 points, and now to a gain of 300 points as I type. Yes, that's the volatility we've been talking about. Until everyone can get a grip on what to do, we will most likely see these big swings over the next few weeks. Goodyear Tire (GT) Fills have gone across the tape in our new put-sell play on GT. I will have the official results on Monday. Friday Q&A Q: Hi Lee On my platform, it doesn't have section called SOLD to OPEN when to close my positions. Does it mean BUY TO CLOSE? if I want to close my positions??? I think I need BUY TO CLOSE. I tried to SELL TO CLOSE but platform says I need BUY TO CLOSE for my position. Whatever I sell, I have to buy in the end. A: Hi, this is just a misunderstanding of the actual order sequence and lingo used to execute our trades. When we initiate a new put-sell position, we are selling the put option to open the trade. This is the first part of the trade. When you execute it at your broker, you must select "sell-to-open" for the instructions. When it comes time to close the trade, we will be buying the put option back from the market. The instructions at that time will be "buy-to-close". When I give the results in the alerts, I change the language to reflect the past tense - "sold-to-open" and "bought-to-close". This is what may have tripped up this member. There are no instructions at your broker that says "sold-to-open" or "bought-to-close". Those terms come from our own language at Smart Option Seller. Hope this clarifies things a bit. Q: good morning lee it is friday i have a question when do you cover? A: I'm assuming you mean when do we cover our positions (buy back) when the market falls apart like it's been this week? We typically don't cover in scenarios like this. We're in it for the long haul, and if we end up buying some of our stocks (by getting "put" the shares), we will be in a good position to profit when the stocks move back up. Remember, we're selling the put options at strike prices that are well below the stock's current price. We have a nice downside cushion built in. The only time we will cover and buy the put options back is if the stock actually falls 25%-30% below the strike price before expiration. That's our stop-loss level. But typically, if we get into a bad situation, we will engage a "roll" trade with the options to take on a more conservative position. We haven't had to do a "roll" yet, so don't worry about it at this time. I will give all instructions when needed. Keep holding. Q: HI Lee, I wanted to understand your approach. You are saying receive $27 per contract -minus commission gives you around $20 with a 4k collateral. I really don't get the numbers here of any of the trades. The stock is at 50$. I am a bit disappointed on this strategy and the returns seem horrible. A: I saved this question for last, as it is a typical reaction from investors who have never sold put options before. Many will feel the same way that this member does about the strategy. I'm assuming you are referring to the recent VZ put-sell. If so, yes, we are selling the put options and receiving the upfront cash payment. And yes, we are receiving $27 for the put option in question. But your commission of $7 per contract could be better. You shouldn't be paying much more than $1 - $5 per contract at most brokers. Anyway, the most important point I want to make is about the margin requirement (collateral). If you are selling put options in a Cash or IRA account, then yes, you will not get the best return for this strategy. I highly recommend using a margin account. Please read my Margin Primer in the members-only section of the website. In my opinion, it's not right (or fair) to have to put up the full amount of the potential future purchase of the stock ($3,900 in this case for one option contract), if we in fact don't know whether we'll have to buy the stock at expiration. Most brokers will require a 20% margin collateral for their margin accounts, $780 in this case per each put option contract sold. That's using 80% less of your free cash, and it makes the percentage return at the end of the trade that much higher. In this case, you would calculate your return as $27/$780 = 3.5% (.035) for our typical 90-day hold versus a return of $27/$3,900 = .7% (.007). Do that four times a year and you have decent return on margin of 14%. You're using your free cash much more efficiently with a margin account. But it's entirely up to you. I've always touted our put-selling ways as very conservative, very safe, and one that hits multiple singles throughout the year. It is not a get-rich-quick type of method nor is it a home-run hitter. It should be seen as a way of adding another dimension to your overall portfolio. Most of our members love the way it turns out even if they were skeptical at first. The best thing to do is to give the strategy a chance, and watch how it performs over a few months. I believe you'll be singing a different tune when you see all the high probability winners rolling in. Thanks for your question. That's all for today. Have a great weekend! Continue to hold all other trades as-is and continue to contact me here 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!