Mid-Week Update Hello Smart Option Sellers! How about a mid-week update? The stock markets seem to be churning quite a bit lately, with an ever-so-slight upwards bias. That type of market action works great for put-selling. Why? Because the less a stock moves, the less chance it has to hit our strike price. And when that happens, put option prices deflate quicker. When stock prices flat-line or rise, put option values go down. This is what we want to happen, as it will allow us to buy the put option back at a cheaper price than what we sold it for. Also, as each day passes, all options contracts (puts and calls) lose a little bit of their value, regardless of which way the stock moves. This is called "time decay", and it actually speeds up the closer we get to expiration. And lastly, as stocks stagnate, it brings down the perceived volatility of the stock itself. Volatility helps determine an option's price, so if stocks are expected to move less, there will be less volatility to jack up the option's price. This also is a great thing for us. So, we have three things working in our favor: 1. Slow (or no) stock movement 2. Time decay 3. Decreased volatility This is an option-seller's trifecta, and it's working great for us right now. As you look at our current portfolio, you will see the price of every put-sell position except Gap, Inc. (GPS) has gone down in value from our original entry sell price. GPS is at breakeven at the moment. This means that if we wanted to buy back each position to close out the trade, we could do so for a profit. When we reach my "80% Rule" threshold, that's when we will close out the trades. The 80% Rule states that once the put option has decreased 80% from the original entry sell price, we will put in an order to buy it back. We are getting very close to that level on some of our trades. Stay tuned! Now, as much as stock stagnation helps our current positions, it can sometimes have a slightly negative effect on finding new put-sell plays, especially during the summer doldrums. When stocks stagnate, put option prices get cheaper. We don't like selling options too cheaply, so sometimes we may see a lull in new trades from time to time. On the flip-side, we are in the midst of earnings season, and that is also some of the best times to find new put-sell plays. Why? Because oftentimes, quality stocks will have a one-off bad quarter and the stock will get pounded to the downside. This is our cue to step in and sell put options when option prices get inflated. When stocks fall, people panic and pay up for downside protection. Their go-to protection is to buy put options, and pay handsomely for them. That's when we sell them and get the best deals. You know I love it when quality stocks drop big. So, don't worry too much if we have slow periods for new trades. I'm just biding our time to jump on the best opportunities. I always say to my readers, "no sense in making a trade just for the sake of making a trade." Trying to force a trade just because you're bored is the fastest way to lose money. Don't do it! Summers are meant to be enjoyed, and not for giving your money away because you feel like you need to be in the market action. That's all for now. Continue to hold all other positions as-is. Contact me here Regards,
Lee Let's Grab That Cash!