A New Buy-Back & Profit Results For MRK, LOW & VXX

Time To Lock In Another Winner! Hello Smart Option Sellers! Before I get to the results of yesterday's buy-back trades, we have another open position that we're going to close out for a gain today, as well. Southwest Airlines (LUV) We've reached the 80% Rule threshold on this one, so let's lock it in. 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 LUV June 15, 2018 $42.50 put options for a limit buy price of $.05 per contract, GTC, as a closing transaction (buy-to-close). Currently, this put option is offered at $.05 (at time of print), so we should have no problem getting filled. If the $.05 offer is gone by the time you place your trade, keep your order working "GTC". It has already traded at $.05 today, so I think the market will oblige us. Get those orders in now before reading the rest of this alert. Profit Results We were successful at closing out all three trades from yesterday's alert. Let's go over the results. Merck (MRK) Here's what we did: Bought back (bought-to-close) all of the MRK July 20, 2018 $45 put options for an official buy price of $.07 per contract as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this put option on February 2, 2018 for a sale price of $.27 per contract, and now we took gains by buying it back (bought-to-close) for $.07 per contract. With the fill at $.07, it locked in a gain of $.20 per contract ($20 for every contract traded) and a return on margin (ROM) of roughly 2.2% in three and a half month's time. If you like to annualize, that's roughly a 7.5% 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 $4,500 = $900. 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 $900 per each put option contract sold. Our profit on this trade turned out to be $20 per each put option contract sold. Hence, the return on margin (ROM) comes out to $20/$900 = 2.2%. Also, the fill at $.07 allowed us to capture 74% of the full profit potential ($.20 gain/$.27 full potential = 74%). 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 $.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". As mentioned yesterday, we were going to lock in a bit less than that. We will do that from time to time. Locking in early wins is just smart money management and it allows us to free up cash to put towards new trades. Great job everyone. Lowe's Corp. (LOW) Here's what we did: Bought back (bought-to-close) all of the LOW July 20, 2018 $60 put options for an official buy price of $.08 per contract as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this put option on March 1, 2018 for a sale price of $.33 per contract, and now we took gains by buying it back (bought-to-close) for $.08 per contract. With the fill at $.08, it locked in a gain of $.25 per contract ($25 for every contract traded) and a return on margin (ROM) of roughly 2.1% in two and a half month's time. If you like to annualize, that's roughly a 10% return. Also, the fill at $.08 allowed us to capture 75% of the full profit potential ($.25 gain/$.33 full potential = 75%). Congrats! If anyone hasn't been filled yet, keep your order working "GTC". VIX Short-Term Futures ETN (VXX) Here's what we did: Bought back (bought-to-close) all of the VXX June 15, 2018 $45/$46 call option credit spreads for an official debit buy price of $.08 per spread as a closing transaction (bought-to-close). Here are the profit details: We originally established (sold-to-open) this option spread on February 14, 2018 for a sale price of $.31 per spread, and now we took gains by buying it back (bought-to-close) for $.08 per spread. With the fill at $.08, it locked in a gain of $.23 per contract ($23 for every contract traded) and a return on margin (ROM) of roughly 33% in three month's time. If you like to annualize, that's roughly a 133% return. You might be see quite a difference in the ROM for this trade. When trading option spreads, the margin requirement can be quite reduced. In this case, the spread was one strike wide ($46 - $45 =$1). The most you could ever lose on a spread is the difference between strikes minus the amount collected. In this trade, $100 is the difference between strikes for every one spread that is sold, But since we sold the spread for $.31 ($31 per spread), that amount is deducted from the $100, and thus, the net margin turned out to be $69. Also, $69 is the most you could lose per spread. $23 profit/$69 margin = 33% ROM. Also, the fill at $.08 allowed us to capture 74% of the full profit potential ($.23 gain/$.31 full potential = 74%). Congrats! That's all for now. Continue to hold all other positions as-is. Contact me here Regards,