More Profit Results - Merck
More Profit Results Hello Smart Option Sellers! Merck (MRK) If you had your order working "GTC" as instructed from Monday, then you were successfully filled on this buy-back trade yesterday. Here's what we did: Bought back (bought-to-close) all of the MRK April 20, 2018 $47.50 put options for an official buy price of $.05 per contract as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this put option on October 11, 2017 for a sale price of $.28 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 $.23 per contract ($23 for every contract traded) and a return on margin (ROM) of roughly 2.4% in six month's time. This was by far our longest trade to date, as the market corrections held us back from closing it earlier. If you like to annualize, that's roughly a 4.8% 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 concepts. We are not "trading on margin" when selling put options (read my margin primer in the members-only section of the website). 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 $4,750 = $950. 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 $950 per each put option contract sold. Our profit on this trade turned out to be $23 per each put option contract sold. Hence, the return on margin (ROM) comes out to $23/$950 = 2.4%. Also, the fill at $.05 allowed us to capture 82% of the full profit potential ($.23 gain/$.28 full potential = 82%). 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 was $.28 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". Locking in early wins is just smart money management and it allows us to free up cash to put towards new trades. Congrats to all who were involved. For those of you who may still be holding the MRK position, it expires next Friday April 20th, so there's a good chance it will expire worthless. You can certainly hold it all the way through, and if it does expire worthless, you will not only be able to attain the full profit potential, but you will also be able to save yourself a commission too. As of now, MRK stock is at $56.35, putting it almost $9 above the $47.50 strike price. On another note, as the market continues its wild swings, we will hold all other open positions as-is for the time being. Until we can see some signs of stability and/or an uptrend taking hold, there's no sense in being too impatient on jumping into new put-sell plays unless it's just too good to pass up. Since put-selling is a mostly neutral-bullish strategy, we don't want to get caught getting in early if the market still has more downside to shakeout. That's all for now. 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!