Position Update And Friday Q&A
Position Update Hello Smart Option Sellers! Happy Friday! The market has been mostly trending up of late, although we're seeing a down day this session as I type. For any previously established put-sell positions, an up-trending market is our best friend. As stocks move higher, put option prices move lower. That is how we'll make our money, as we'll be able to buy the put options back for less than what we sold them for. Sell high, buy low. In that order. All of our open positions are currently in the black, even our thorn in the side General Mills (GIS) has moved into profitability as I type. As I mentioned in the last alert, we will most likely be closing out the GIS position in the next two weeks before they release earnings on June 27. As long as the stock doesn't veer too far from its current level ($44.50), the time decay feature should put more downward pressure on the put option price. This will be beneficial. I'm a little frustrated with how long this position has taken to become profitable for us, but we know, as well as the market-makers, GIS has been a very weak stock for a long time now, so the put option prices remain elevated. With the stock about $4.50 per share above our $40 strike price, the put option is hovering near $.25 per contract. If you think about it, we recently closed out a put-sell play on GT by buying it back for $.05 per contract. GT was also $4 per share above the strike price and would've expired next month just like GIS. So why were we able to buy back the GT put option for $.05 and the GIS put option is still worth $.25 per contract? It's all due to the perception and the weakness in GIS stock. There's a bigger chance GIS stock can fall again, possibly quickly, while GT stock wasn't seen as such a bearish risk. This is the reason why GT put options were much cheaper compared to GIS put options, even though they were both expiring at the same time and both were roughly $4+ per share above the strike price. Anyway, hopefully we'll be able to close the GIS position real soon and lock in a few dollars of profit. If anyone feels the need to close out sooner, you are more than welcome to. Friday Q&A Q: Hi, Lee, After years of doing it naked both with you at OxC and in your current service, I finally tried a credit spread. Wow. I like it. Is there any reason you seldom recommend them? Seem to have many advantages: fear of dire consequences of assignment almost gone; margin requirement minimized allowing more trades for a given account size; access to better (higher) premiums and bigger BANG; access to higher price stocks. What am I missing? A: You're absolutely right! Option credit spreads are a great way to trade the markets and have all the benefits you mentioned above. The biggest drawback, and it's one of the reasons why we don't use them (yet!), is because you have to use strike prices that are very near the current price of the stock in order to get a decent premium. And for that reason, you don't get a big enough cushion for directional error. You all know that I choose strike prices for our put-sells that are very far out-of-the-money (OTM), with anywhere from 15%-50% downside cushion. This allows us a buffer in case the stocks drop a bit. No one can always be right in their directional assessment of a stock, so you need cushion in case you're wrong. When selling option credit spreads, that buffer can get very small, so you have to be very accurate in your directional opinion. Our typical put-sell price is usually between $.25-$.30 per contract. If you wanted to get that kind of premium when selling the spreads, and depending on how wide apart the strikes are, you'd have to pick strike prices that are much closer to the stock's current price. That's not ideal for me Take a look at an option chain for yourself and compare prices. You'll see what I mean. I'm not averse to it, and many of you have asked me about it. It's the next possible type of service I'm considering offering. I'm still debating it, and trying to figure out the best combination for attaining a high win rate and collecting a decent premium when selling the spreads. Stay tuned! Q: hi lee what is the risk in rolling? A: When we roll a put-sell trade, we end up buying back the original put-sell position (usually for a loss) and re-sell a new put-sell trade in a further-out expiration month using a lower strike put option. This new position is sold for a price that will offset the loss taken in the original trade. The risk in doing a roll is if the stock continues to drop. If it does, you can wind up with a loss on the new position. Added together with the loss on the original trade, and you got yourself a double loss. Rolling can certainly help, and we've done it successfully many times in The Instant Money Trader (my previous newsletter). You just need to be sure that you still believe in the longevity of the stock and willing to extend the trade for an extra few months. Q: Hi Lee can you comment and recommend regarding the war that is going on between the banks and crypto. As you know, banks are rapidly cancelling our privilege of buying crypto, do you have a solution since a lot of us are forbidden to transfer money with credit and debit card to trading platform. For information i’m in Canada but i’ts the same around the world. A: Hi, I appreciate the question. Cryptos garnered a lot of attention starting last summer and all the way to the end of 2017 when bitcoin traded near $20,000 per coin. Since then, every crypto coin has been in a downtrend. Bitcoin is now near $6,500 per coin, giving the latecomers a nasty hangover. I'm certainly no expert in the field, but I do know that we're on the cusp of witnessing something very new and exciting in the realm of a new type of currency. I believe Bitcoin (and blockchain) is here to stay, but it will be a bumpy ride. I'm in it for the long haul. And that means at least 5-10 years. I've laid down my stake and will see what happens. Maybe I'll buy a bit more too. Haven't decided. As far as the banks limiting payment methods - I can't really comment on that. I do know some of the banks won't let you use their credit or debit cards to buy cryptos anymore. I think you'll just need to find a different way (or different credit card) if you want to buy cryptos. I'm sorry I don't have a better answer, but I just don't know enough about it. My final word of advice - if you have some play money that you can afford to use, buy a small stake in bitcoin. You can buy fractions of a bitcoin, so you can literally spend only $50 or $100 if you want. Read the section near the bottom of the alert about Bitcoin. I've included a link for opening an account at Coinbase where we'll both receive $10 worth of free bitcoin when you sign up. Hope this helps you a little bit. Q: hi lee saw your e mail on svu if not filled you can change the strike but not the premium can you change the expiration date? A: For anyone who has not been filled on the SVU put-sell, I mentioned that you can use a different strike price if you want. This would mean going a strike or two higher ($11 or $12 strikes) than our recommended play. You could also use a different expiration month too. Up to you. But just know, I will only officially be following the trade that we enter. If you use something else, you're on your own! That's all for now. Have a great weekend! Continue to hold all other positions as-is. 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!