Profit Results - GT
Profit Results - Goodyear Tire (GT) Hello Smart Option Sellers! We had no problem getting filled on yesterday's buy-back order on GT. Another successful trade locked in! Here's what we did: Bought back (bought-to-close) all of the GT July 18, 2018 $21 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 February 9, 2018 for a sale price of $.25 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 $.20 per contract ($20 for every contract traded) and a return on margin (ROM) of roughly 4.7% in four month's time. If you like to annualize, that's roughly a 14.2% return. You might notice, that although our dollar gains are typically the same for each trade, our ROM can fluctuate quite a bit. The reason being - the strike price has everything to do with how much margin you will be required to hold aside. The higher the strike price, the higher the margin requirement. And vice versa. This is one of the reasons why I like to focus on lower-priced stocks - typically $50 and under. 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 $2,100 = $420. Your specific margin requirement at your broker may be higher or lower than that. If you are unsure, just ask them. Your margin requirement will also have an effect on your final ROM. So for this trade, our margin requirement is $420 per each put option contract sold.